The Modified Accelerated Cost Recovery System (MACRS) is the current tax depreciation system in the United States. Under this system, the capitalized cost (basis) of tangible property is recovered over a specified life by annual deductions for depreciation. The lives are specified broadly in the Internal Revenue Code. The Internal Revenue Service (IRS) publishes detailed tables of lives by classes of assets. The deduction for depreciation is computed under one of two methods (declining balance switching to straight line or straight line) at the election of the taxpayer, with limitations.[1] See IRS Publication 946 for a 120 page guide to MACRS.



Tax deductions for depreciation have been allowed in the U.S. since the inception of the income tax. Prior to 1971, these deductions could be computed in a variety of manners over a wide range of lives, under old Bulletin F. In 1971, Congress introduced the Class Life Asset Depreciation Range (ADR) system in an attempt to simplify calculations and provide some uniformity. Under ADR, the IRS prescribed lives for classes of assets based on the nature or use of the asset. Such classes included general classes (such as office equipment) and industry classes (such as assets used in the manufacture of rubber goods). Taxpayers could use their choice of several methods of depreciating assets, including straight line, declining balance, and sum of years digits. Asset costs and accumulated depreciation were tracked by “vintage accounts” consisting of all assets within a class acquired in a particular tax year. All vintage accounts for the same year were assumed placed in service in the middle of the year; however, a taxpayer could elect the modified half year convention with potentially favorable results.

In 1981, Congress again changed the depreciation system,[2] providing generally for shorter lives for recovery of costs. Under the Accelerated Cost Recovery System (ACRS), broad groups of assets were assigned based on the old ADR lives (which the IRS has updated since). Taxpayers were permitted to calculate depreciation only under the declining balance method switching to straight line or the straight line method. Other changes applied as well.

The present MACRS system[3] was adopted as part of the Tax Reform Act of 1986.

Depreciable Lives by Class

Under MACRS a taxpayer must compute tax deductions for depreciation of tangible property using specified lives and methods. Assets are divided into classes by type of asset or by business in which the asset is used. (See tables of classes below.) Where a general class based on the nature of the asset applies (00.xx classes below), that class takes precedence over the use class.

For each class, three lives are specified: one for regular depreciation (GDS in the tables below), one for the alternative depreciation system (ADS), and a class life. Taxpayers may be required to use ADS or otherwise may elect which of the three lives to use. Lives for personal property vary from 3 years to 20 years. Land improvements must be depreciated over 15 or 20 years. Other real property must be depreciated over 27.5 years for residential property, 39 years for business property, and 40 years under ADS.

In addition, shorter lives are provided for certain property, including computers and peripheral equipment, certain high technology equipment, special purpose agricultural structures, and certain other items. MACRS also excluded certain property in regulated industries, as well as films, video tapes, and sound recordings, and certain other items. Also, leasehold improvements to realty are generally treated as real property under MACRS.

Depreciation Methods

Only the declining balance method and straight line method of computing depreciation are allowed under MACRS. Taxpayers using the declining balance change to the straight line method at the point at which depreciation deductions are optimized. See the tables below. All tangible personal property acquired during the year is considered placed in service in the middle of the tax year (“half-year convention”). Real property is considered placed in service in the middle of the month in which acquired (“mid-month convention"). Special rules apply for pro rating deductions for short tax years and for the first year of business, or where more than 40% of tangible personal property additions are in the final quarter of the year.[4]

The method and life used in depreciating an asset is an accounting method, change of which requires IRS approval.[5]

Taxpayers may track the basis and accumulated depreciation of assets individually or in vintage accounts, as in the old ADR system. Where assets are tracked in vintage accounts, a first-in-first-out convention is usually applied to determine basis of assets retired.

Special allowances and bonus depreciation

At various times, additional depreciation deductions have been allowed to encourage investment. These allowances generally have had limitations. For example, an additional deduction of 50% of the cost of qualifying property is allowed for certain property acquired after December 31, 2007 and before January 1, 2011[6] A nearly identical allowance was available for property acquired after September 10, 2001 and before 2005.

Special rules have also recently been added for biofuel, recycling, and disaster assistance property.[7]

Alternative Depreciation System

Certain assets must be depreciated under an alternative depreciation system (ADS), using the ADS life and the straight line method.[8] Generally, this applies to assets used outside the United States. The ADS may be applied at the election of the taxpayer in lieu of regular depreciation. In addition, the ADS must be used for computing depreciation deductions for the Alternative Minimum Tax. ADS lives are the same as regular depreciation lives for a few classes, but are generally somewhat longer than regular lives for most classes.


The following example is extracted from IRS Publication 946:

You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2010. You use the furniture only for business.

Part I
1. MACRS system (GDS or ADS) GDS
2. Property class 7-year
3. Date placed in service 8/11/10
4. Recovery period 7-Year
5. Method and convention 200%DB/Half-Year
6. Depreciation rate (from tables) .1429
Part II
7. Cost or other basis* $10,000
8. Business/investment use 100%
9. Multiply line 7 by line 8 $10,000
10. Total claimed for section 179 deduction and other items -0-
11. Subtract line 10 from line 9. This is your tentative basis for depreciation $10,000
12. Multiply line 11 by .50 if the 50% special depreciation allowance applies. Multiply line 11 by 1.00 if the 100% special depreciation allowance applies. This is your special depreciation allowance. Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance -0-
13. Subtract line 12 from line 11. This is your basis for depreciation $10,000
14. Depreciation rate (from line 6) .1429
15. Multiply line 13 by line 14. This is your MACRS depreciation deduction $1,429
*If real estate, do not include cost (basis) of land.

MACRS property classes table

From IRS Publication 946 Excerpt from Table B-1 (many asset classes omitted here)

IRS Asset Classes Asset Description ADS Class Life GDS Class Life
00.11 Office furniture, fixtures, and equipment 10 7
00.12 Information systems: computers/peripherals 6 5
00.22 Automobiles, taxis 2 5
00.241 Light general-purpose trucks 4 5
00.25 Railroad cars and locomotives 15 7
00.40 Industrial steam and electric distribution 22 3
01.11 Cotton gin assets 10 7
01.21 Cattle, breeding or dairy 7 5
13.00 Offshore drilling assets 7.5 5
13.30 Petroleum refining assets 16 10
15.00 Construction assets 6 5
20.10 Manufacture of grain and grain mill products 17 10
20.20 Manufacture of yarn, thread, and woven fabric 11 7
24.10 Cutting of timber 6 5
32.20 Manufacture of cement 20 15
20.1 Manufacture of motor vehicles 12 7
48.10 Telephone distribution plant 24 15
48.2 Radio and television broadcasting equipment 6 5
49.12 Electric utility nuclear production plant 20 15
49.13 Electric utility steam production plant 28 20
49.23 Natural gas production plant 14 7
50.00 Municipal waste water treatment plant 24 15
57.0 Distributive trades, and services 9 5
80.00 Theme and amusement park assets 12.5 7
  • The depreciation deduction for automobiles is limited to $7660 (maximum) the first tax year, $4900 the second, $2950 the third year, and $1775 per year in subsequent years.

MACRS GDS property classes table

Property Class Personal Property (all property except real-estate)
3-year property Special handling devices for food and beverage manufacture.
Special tools for the manufacture of finished plastic products, fabricated metal products, and motor vehicles
Property with ADR class life of 4 years or less
5-year property Information Systems; Computers / Peripherals
Aircraft and parts (of non-air-transport companies)
Petroleum drilling equipment
Property with ADR class life of more than 4 years and less than 10 years
Certain geothermal, solar, and wind energy properties.
7-year property All other property not assigned to another class
Office furniture, fixtures, and equipment
Property with ADR class life of more than 10 years and less than 16 years
10-year property Assets used in petroleum refining and certain food products
Vessels and water transportation equipment
Property with ADR class life of 16 years or more and less than 20 years
15-year property Telephone distribution plants
Municipal sewage treatment plants
Property with ADR class life of 20 years or more and less than 25 years
20-year property Municipal sewers
Property with ADR class life of 25 years or more
Property Class Real Property (real estate)
27.5-year property Residential rental property (does not include hotels and motels)
39-year property Non-residential real property

MACRS applicable percentage for property class

From IRS Publication 946 Table A-1. Other tables are available for options different than those shown below.

Recovery Year 3-Year Property 5-Year Property 7-Year Property 10-Year Property 15-Year Property 20-Year Property
1 33.33 20.00 14.29 10.00 5.00 3.750
2 44.45 32.00 24.49 18.00 9.50 7.219
3 14.81 * 19.20 17.49 14.40 8.55 6.677
4 7.41 11.52 * 12.49 11.52 7.70 6.177
5 11.52 8.93 * 9.22 6.93 5.713
6 5.76 8.92 7.37 6.23 5.285
7 8.93 6.55 * 5.90 * 4.888
8 4.46 6.55 5.90 4.522
9 6.56 5.91 4.462 *
10 6.55 5.90 4.461
11 3.28 5.91 4.462
12 5.90 4.461
13 5.91 4.462
14 5.90 4.461
15 5.91 4.462
16 2.95 4.461
17 4.462
18 4.461
19 4.462
20 4.461
21 2.231
  • The 3-, 5-, 7-, and 10-year classes use 200% and the 15- and 20-year classes use 150% declining balance depreciation.
  • All classes convert to straight-line depreciation in the optimal year, shown with an asterisk (*).
  • A half-year depreciation is allowed in the first and last recovery years.
  • If more than 40% of the year's MACRS property is placed in service in the last three months, then a mid-quarter convention must be used with depreciation tables that are not shown here.

MACRS percentage for real property table

Recovery Year Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
1 2.461 2.247 2.033 1.819 1.605 1.391 1.177 0.963 0.749 0.535 0.321 0.107
2-39 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564
40 0.107 0.321 0.535 0.749 0.963 1.177 1.391 1.605 1.819 2.033 2.247 2.461
  • The useful life is 39 years for nonresidential real property. Depreciation is straight line using the mid-month convention. Thus a property placed in service in January would be allowed 11½ months depreciation for recovery Year 1.


  • U.S. Internal Revenue Service Publication 946, How to Depreciate Property. Washington, DC: U.S. Government Printing Office.
  • IRS Rev. Proc. 87-56 and 87-55 (shown above as tables, as currently updated)


  1. ^ Note that taxpayers may elect unser 26 USC 179 to claim a deduction for the full basis of certain amounts of property placed in service during the taxable year, subject to limitations. This election supersedes MACRS deductions for the basis so deducted.
  2. ^ Economic Recovery Tax Act of 1981.
  3. ^ 26 USC 168; 26 CFR 1.168(a)-1, et seq.
  4. ^ 26 CFR 1.168(d)-1.
  5. ^ See IRS Form 3115 and instructions.
  6. ^ 26 USC 168(k), which has been amended numerous times.
  7. ^ 26 USC 168(l), (m), and (n).
  8. ^ 26 USC 168(g).

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