Modified Accelerated Cost Recovery System (MACRS)

Definition of "Modified Accelerated Cost Recovery System (MACRS)"

Daniel  Demissie real estate agent
Daniel Demissie, Real Estate Agent EXp Realty LLC

Term given to two depreciation systems defined by the Internal Revenue Service:

  1. The main system is called the General Depreciation System (GDS). Under GDS, most property is assigned to eight property classes based on their class lives. These property classes provide the recovery period to be used by establishing the number of years over which the basis of an item in a class is recovered.
  2. The Alternative Depreciation System (ADS) generally provides for a longer recovery period and uses only the straight line method of depreciation to figure your tax deduction.

Both systems establish conventions determining how many months property can be depreciated in the first year it is placed in service and in the year of disposition.

  1. 20-year property. This class includes property such as farm buildings.
  2. Residential rental property. This class is comprised of rental buildings or structures for which 80% or more of the gross rental income is from dwelling units. Examples are living in a house or apartment. It excludes hotels and motels. Residential rental property is depreciated over 27.5 years.
  3. Nonresidential real property. This class includes real property that is not residential rental property. This property is depreciated over 31.5 years.

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