Modified Accelerated Cost Recovery System (MACRS)

Definition: 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. MACRS was introduced 1986. It modified the Accelerated Cost Recovery System (ACRS) that was introduced in 1981 and itself modified in 1984.MACRS sets out depreciation schedules for different types of assets. 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: MACRS provides for assets to be grouped by the following depreciable lives: 3, 5, 7, 10, 15, 20, and 25 years. Automobiles, computers and office copiers are considered 5-year property. Office furniture and agricultural equipment are considered 7-year property.

Investeach explains: MACRS is a complex system of depreciation. Readers wanting to learn more about it are encouraged to grab a cup of strong coffee and then visit IRS Publication 946.

Riddle me this:

1. In what year was MACRS implemented?
2. What did it modify?
3. For companies following one of the schedules MACRS sets for, what do they no longer have to estimate?
4. What year property is an automobile considered under MACRS?
5. What year property is office furniture considered under MACRS?