# Modified Accelerated Cost Recovery System Definition

The modified accelerated cost recovery system (MACRS) method of depreciation assigns specific types of assets to categories with distinct accelerated depreciation schedules. Furthermore, MACRS is required by the IRS for tax reporting but is not approved by GAAP for external reporting.

## MACRS Depreciation Calculation

To calculate depreciation for an asset using MACRS, first determine the asset’s classification. Then use the table (below) to find the appropriate depreciation schedule.

When using MACRS, an asset does not have any salvage value. This is because the asset is always depreciated down to zero as the sum of the depreciation rates for each category always adds up to 100%. When calculating depreciation expense for MACRS, always use the original purchase price of the asset as the depreciable base for each period. Note that you depreciate each category for one year longer than its classification period. For example, depreciate an asset classified under 3-Year MACRS for 4 years. Then depreciate an asset classified under 5-Year MACRS for 6 years, and so on.

### MACRS Example

For example, an asset purchased for \$100,000 that falls into the 3-Year MACRS category shown below, would be depreciated as follows:

```Year		Depreciation Rate	     Depreciation Expense
1		     33.33%	         \$33,330     (33.33% x \$100,000)
2		     44.45%	         \$44,450     (44.45% x \$100,000)
3		     14.81%	         \$14,810     (14.81% x \$100,000)
4		      7.41%	          \$7,410     (7.41%   x \$100,000)```

### MACRS Depreciation Table

Below is the table for Half-Year Convention MACRS for 3, 5, 7, 10, 15, and 20 year depreciation schedules.

```	Depreciation Rates (%)

Year    3-Year    5-Year   7-Year   10-Year  15-Year  20-Year

1     33.33     20       14.29    10       5        3.75
2     44.45     32       24.49    18       9.5      7.219
3     14.81     19.2     17.49    14.4     8.55     6.677
4      7.41     11.52    12.49    11.52    7.7      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    5.9      4.888
8                         4.46     6.55    5.9      4.522
9                                  6.56    5.91     4.462
10                                  6.55    5.9      4.461
11                                  3.28    5.91     4.462
12                                          5.9      4.461
13                                          5.91     4.462
14                                          5.9      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```

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For more detailed information regarding MACRS, go to: irs.gov/publications

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