Accelerated Cost Recovery System (ACRS)

Definition: Standing for Accelerated Cost Recovery System, a law that allows depreciation of equipment (and other assets) in the early years of its life to be larger than it would be under the straight-line method. This lowers a company’s income taxes. ACRS was introduced 1981, modified in 1984, and superceded by the Modified Accelerated Cost Recovery System (MACRS) in 1986. Therefore, ACRS generally governs equipment placed into service between 1981 and 1986.

ACRS sets out depreciation schedules for different types of assets and specifies the percentages of depreciation that should be taken each year. These schedules make it unnecessary for companies to estimate an asset‘s useful life and salvage value at the end of that life. Accelerated depreciation under these schedules or through another method is not available for every type of asset.

Example: ACRS provides for assets to be grouped by the following depreciable lives: 3, 5, 10, 15, 18, and 19 years. Computers and office copiers are considered 5-year property. The percentage of the purchase price (ie, cost basis) that should be recorded as depreciation in each year follows:

Year 1:  15%
Year 2: 22%
Year 3: 21%
Year 4: 21%
Year 5: 21%

Investeach explains: ACRS is a complex system of depreciation that is still relevant to companies which put long-lasting assets into service from 1981 to 1986. Readers wanting to learn more about it are encouraged to grab a Snuggie, a cup of tea, and then read IRS Publication 534.

Riddle me this:

  1. In what year was ACRS implemented?
  2. In what year was it superceded?
  3. What superceded it?
  4. What year property is a computer considered under ACRS?
  5. What approach does ACRS take to determining the depreciation that should be recorded each year?
  6. What doesn’t a company using an ACRS depreciation schedule have to worry about estimating?