What is the Modified Accelerated Cost Recovery System?

A. Leverkuhn
A. Leverkuhn
Man climbing a rope
Man climbing a rope

The Modified Accelerated Cost Recovery System is a method for depreciating assets. This accounting system for asset depreciation is something that businesses are required to use on their income taxes due to the tax Reform Act of 1986. The Modified Accelerated Cost Recovery System improves the ability of a business to write off more of an asset’s depreciation quickly within the general depreciation system that MACRS provides.

Before the modified accelerated cost recovery system, depreciable property was depreciated using a simpler “linear” system. The Modified Accelerated Cost Recovery System provides accelerated depreciation, and some different calculations that will lead to more accurate depreciating for business assets. The MACRS also adds what’s called a “half-year convention” to make the depreciations for first and last years of an asset’s use simpler, as part of addressing some of the problems noted with the previous depreciation models that some economists found to be oversimplified.

Another change in the Modified Accelerated Cost Recovery System is to various property classes. Property classes are different types of assets that depreciate differently. The MACRS contains its own detailed table of property classes, with a description of each property class, years for depreciation, and much more to help business accountants figure out how to depreciate each individual asset that a business owns.

Using the Modified Accelerated Cost Recovery System tables, a business accountant finds out which property class an object or piece of equipment is in. Then, he or she uses the tables to get the depreciation percentage. All amounts of depreciation are added to columns for general business deductions to balance against categories of business income tax by percentage.

In terms of the gradual evolution of accurate depreciating tools, the MACRS developed from an earlier ACRS or Accelerated Cost Recovery System that renovated the previous linear model. Professional accountants refer to the MACRS as a “front-loaded” depreciation system because it allows for more depreciation write-offs in the first years of ownership. A look at the gradual process of the IRS work on depreciation shows how the federal tax code is constantly changing to adapt to new demands and challenges. To some, the MACRS represents a small part of what many consumer and business advocates are always asking for: a more simplified, user-friendly tax code that makes filing annual returns easier.

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