Federal Tax

Depreciation: MACRS and ACRS (Portfolio 531)

  • This Portfolio examines the depreciation deduction under the modified accelerated cost recovery system (MACRS) and the original accelerated cost recovery system (ACRS) of §168.

Description

Bloomberg Tax Portfolio, Depreciation: MACRS and ACRS, No. 531, is a basic reference tool for determining the depreciation deduction under both the modified accelerated cost recovery system (MACRS) and the original accelerated cost recovery systems (ACRS) of §168. Although MACRS and ACRS are similar in many respects, there are substantial differences between them. Accordingly, this portfolio provides “ACRS Differences” descriptions in connection with each issue with respect to which there is a difference. MACRS applies generally to property placed in service after 1986. ACRS applies generally to property placed in service from 1981 through 1986. Topics covered include effective dates and the anti-churning rules, eligible property, basis, classification of property, computation of the deduction (including the use of statutory or IRS-created tables), and limitations and special rules affecting the availability or amount of the deduction.

Under both MACRS and ACRS, certain “recovery periods” (analogous to depreciable lives under the pre-ACRS depreciation system of §167) are prescribed and salvage value is ignored. The deduction can generally be computed by simply applying a factor from a statutory or IRS-provided table. More complex computations may be required, however, in many circumstances; these circumstances and the required computations are described in this Portfolio.

Table of Contents

I. Introduction

A. Overview

B. Legislative Background

C. Changes in Method of Depreciation

II. Effective Dates

A. In General

B. Election for Property Placed in Service After July 31, 1986, and Before MACRS Effective Date Period

C. Transitional Rules

D. Anti-Churning Rules

III. Property Eligible for MACRS or ACRS

A. In General

B. Tangible Property

C. Trade, Business, or For-Profit Use

D. Of a Character Subject to the Allowance for Depreciation

E. Exclusions from MACRS and ACRS

F. Possession of Economic Interest in the Property

G. Foreign Corporations and Nonresident Aliens

H. Community Property

IV. Unadjusted Basis

A. In General

B. Basis Rules

C. Reductions in Unadjusted Basis

D. Special Rule for Partnerships

E. Special Rule for Sound Recordings Under ACRS

V. Recovery Period and Classification of Property

A. In General

B. Three-Year Property Under the MACRS general depreciation system (GDS)

C. Five-Year Property Under the MACRS General Depreciation System (GDS)

D. Seven-Year Property Under the MACRS General Depreciation System (GDS)

E. Ten-Year Property Under the MACRS General Depreciation System (GDS)

F. Fifteen-Year Property Under the MACRS General Depreciation System (GDS)

G. Twenty-Year Property Under the MACRS General Depreciation System (GDS)

H. Twenty-Five-Year Water Utility Property Under the MACRS General Depreciation System (GDS)

I. Twenty-Seven-and-One-Half-Year Residential Rental Property Under the MACRS General Depreciation System (GDS)

J. Thirty-One-and-One-Half-Year Nonresidential Real Property Under the MACRS General Depreciation System (GDS)

K. Thirty-Nine-Year Nonresidential Real Property Under the MACRS General Depreciation System (GDS)

L. Fifty-Year Railroad Property Under the MACRS General Depreciation System (GDS)

M. MACRS Alternative Depreciation System (ADS)

N. Indian Reservation Property

O. Three-Year Property for ACRS Purposes

P. Five-Year Property for ACRS Purposes

Q. Ten-Year Property for ACRS Purposes

R. Fifteen-Year Public Utility Property for ACRS Purposes

S. Fifteen-Year Real Property for ACRS Purposes

T. Eighteen-Year Real Property for ACRS Purposes

U. Nineteen-Year Real Property for ACRS Purposes

V. Low-Income Housing for ACRS Purposes

W. Property Used Predominantly Outside the United States for ACRS Purposes

X. Retirement-Replacement-Betterment Replacement Property for ACRS Purposes

VI. Recovery Percentages

A. In General

B. Applicable Recovery Methods

C. Applicable Conventions

D. The MACRS Tables and Their Use

E. The ACRS Tables and Their Use

VII. Special Rules Affecting Computation of Deduction

A. In General

B. Listed Property Limitations

C. Short Tax Years

D. General Asset and Mass Asset Accounts

E. Single and Multiple Asset Accounts for MACRS Property

F. Year of Disposition

G. Redeterminations

H. Changes in Use

I. Components of and Improvements to Real Property

J. Transferee Limitations

K. Reacquisition Limitation

L. Nonrecognition Transfer Limitations

M. Cooperatives

N. Partnerships: Ratable Inclusion

O. Determining Lease Term

P. Limitations for Property Financed with Tax-Exempt Bonds

Q. Leasing Transactions

VIII. Miscellaneous Matters

A. Leasehold Improvements

B. Repair Allowances

C. Collateral Effects

D. Effect on §167(d) Agreements

maule-james-2015
James Maule
Professor of Law, Emeritus
Villanova University School of Law
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