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Updated for 2011
Small Business Deductions: Depreciation
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Depreciation Methods (MACRS)
MACRS (Modified Accelerated Cost Recovery System - pronounced MAKERS) is actually composed of two depreciation systems:
- The General Depreciation System (GDS)
- The Alternative Depreciation System (ADS)
The difference between each depreciation system is in the number of years you may depreciate an asset. Generally, the GDS uses shorter recovery periods than the ADS.
However, certain assets have the same recovery period under either system. For example, cars, light duty trucks, and computers have a 5-year recovery period under either system.
Form 4562, Depreciation and Amortization
You make the election to use either GDS or ADS on Form 4562. Whichever you choose, the election is irrevocable.
Use Part III, Section B for GDS and Part III, Section C for ADS. For either method, except for real estate, the election applies to all property within the same class placed in service during the taxable year.
How the General Depreciation System and Alternative Depreciation System Differ
The General Depreciation System (GDS) and the Alternative Depreciation System (ADS) differ in two ways.
- GDS uses:
- Accelerated depreciation (200% and 150% declining balance)
- Straight-line depreciation, and
- Shorter recovery periods.
- ADS uses only:
- Straight-line depreciation, and
- Longer recovery periods
- Note that the ADS and GDS recovery periods for cars, light trucks, an computers are the same, 5 years.
- For business office furniture and fixtures, the ADS straight-line recovery period is 10 years
- For personal property with no class life, the ADS recovery period is 12 years.
- For nonresidential real and residential rental property, you may elect ADS straight-line recovery over 40 years.
- See IRS Publication 946 for ADS recovery periods.
Next:
Depreciation: Depreciation Conventions
Related Links
- Converting Personal Use Property to Business Use
- Converting Personal Use Property to Business Use
- How Did You Acquire the Property?
- Transferring Property Into a Corporation
- Leasehold Improvements
- How to Compute Depreciation
- Two Examples: Computing Depreciation-Example 1: Accelerated MACRS
- How to Claim Depreciation
- What is the First-Year Expensing Deduction (also called the Section 179 deduction)?
- Electing First-Year Expensing
- How to Claim the First-Year Expensing Deduction
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