Legal Definitions - MACRS

MACRS stands for modified accelerated cost recovery system. It is a tax depreciation system used in the United States to calculate asset depreciation. This system replaced the Accelerated Cost Recovery System (ACRS) in 1986 and applies to property placed into service after 1986.

MACRS depreciation allows the capitalized cost of an asset to be recovered over a period, specified in the Internal Revenue Code, via annual deductions. This means that individuals and businesses can deduct a portion of the cost of an asset each year for tax purposes.

MACRS allows for greater accelerated depreciation over longer time periods, which is beneficial to individuals and businesses as it allows them to deduct greater amounts at the beginning of an asset’s life, and relatively less later on. For example, a business may purchase a new piece of equipment for $10,000. Under MACRS, they may be able to deduct $2,000 in the first year, $3,200 in the second year, $1,920 in the third year, and so on.

Overall, MACRS is a tax benefit that allows individuals and businesses to recover the cost of an asset over time, reducing their taxable income and potentially lowering their tax liability.