MACRS.

In plain English

MACRS, the Modified Accelerated Cost Recovery System, assigns each type of business property to a class with a fixed recovery period and a set schedule of yearly percentages. The taxpayer does not estimate useful life or salvage value, because the IRS tables supply both the recovery period and the percentage to deduct each year. Most classes follow an accelerated pattern that switches to straight-line once that produces the larger deduction. Conventions decide how much can be taken in the first year depending on when the asset was placed in service. Because MACRS is a tax rule, book depreciation in the financial statements usually follows a slower method, and the current tables come from IRS publications.

01Why it matters

If you buy equipment for a business, MACRS is what decides the size of this year's deduction, and it is why your tax return and your books will show different profit on the same purchase.

02The math, step by step

Say a machine costs 50,000 dollars and its class table gives a first-year percentage of 20 percent. The first-year tax deduction is 10,000 dollars (50,000 times 0.20). On the books the same machine might be depreciated straight-line over seven years at about 7,143 dollars a year, so tax and book profit diverge from day one.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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