Glossary

MACRS (Modified Accelerated Cost Recovery System)

Also known as: MACRS

The current federal tax depreciation system, which assigns each class of property a fixed recovery period and depreciation method — residential rental real property over 27.5 years and nonresidential real property over 39 years, both straight-line.

MACRS replaced the prior Accelerated Cost Recovery System (ACRS) in 1986 and applies to virtually all depreciable property placed in service since, including real estate; unlike shorter-lived personal property classes under MACRS, real property must use straight-line depreciation with no accelerated method available and no bonus depreciation eligibility, since bonus depreciation requires a recovery period under 20 years. Land itself is never depreciable under MACRS or any system, so purchase price allocations between land and improvements — often set by the county assessor's ratio, an appraisal, or a cost segregation study — directly determine the depreciable basis. Understanding MACRS class lives is the foundation for cost segregation, since the entire benefit of a study comes from moving costs out of the 27.5/39-year real property classes into the 5-, 7-, or 15-year personal property and land improvement classes MACRS also defines.