MACRS Depreciation
The Modified Accelerated Cost Recovery System used to depreciate business assets for federal tax purposes.
REG tests this as a table lookup plus convention selection: identify the property class (5-year for autos/computers, 7-year for office furniture and most machinery, 27.5-year residential and 39-year nonresidential real property), then pick the convention. The classic trap is the mid-quarter convention — if more than 40% of personal-property basis is placed in service in the last quarter, you abandon half-year for all such assets that year. Real property always uses mid-month and straight-line, never accelerated. Watch the ordering when §179 expensing and bonus depreciation stack: take §179 first, then bonus, then regular MACRS on the remaining basis (bonus is back to 100% for qualifying property acquired and placed in service after January 19, 2025 under the 2025 OBBBA, permanently — older banks may still show the repealed 40% TCJA phase-down, or a 40% rate that now applies only to pre-January 20, 2025 acquisitions).
Do not confuse MACRS with book depreciation, which uses estimated useful life and subtracts salvage; MACRS ignores salvage entirely and uses statutory periods. Distinguish it from basis — MACRS computes the deduction, but each year’s deduction reduces adjusted basis, which then drives gain on sale and §1245/§1250 recapture.
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