MACRS Depreciation

MACRS (Modified Accelerated Cost Recovery System) is the depreciation system required for most tangible business property placed in service after 1986. It assigns each type of asset to a recovery class with a specific useful life: 3-year property (certain tools and race horses), 5-year property (computers, cars, trucks), 7-year property (office furniture and equipment), and up to 39-year property (nonresidential real estate).

Under MACRS, most personal property uses the 200% declining balance method for the first years, switching to straight-line when that method produces a larger deduction. This front-loading of deductions provides a time-value-of-money benefit because you receive larger deductions in the early years of an asset's life. Residential rental property uses a 27.5-year straight-line recovery period; nonresidential real property uses 39 years.

MACRS interacts with Section 179 expensing and bonus depreciation. A business can use Section 179 or bonus depreciation to expense an asset entirely in year one, bypassing the normal MACRS recovery schedule. If those provisions do not apply, MACRS governs how the remaining basis is recovered. The half-year convention applies in most cases, treating property as placed in service at the midpoint of the year.