MACRS
From Wikicpa
The Modified Accelerated Cost Recovery System (MACRS) is the current method of accelerated asset depreciation required by the United States income tax code. Under MACRS, all assets are divided into classes which dictate the number of years over which an asset's cost will be recovered.
ACRS
Prior to the Accelerated Cost Recovery System (ACRS), most capital purchases where depreciated using a straight line technique, that allowed for the depreciation of the asset over its useful life. ACRS was in force from 1981-1986 in the United States, under the Economic Recovery Tax Act (ERTA) of 1981. ACRS was unique in three ways; Property class lives were established, calculations were based on an estimated salvage value of zero and shorter recovery periods were used to calculate annual depreciation. This resulted in an accelerated write off of capital costs more quickly than straight line depreciation and was the source of the name.
MACRS
MACRS replaced ACRS in the United States in 1986 with the passing of the Tax Reform Act of 1986 (TRA-86), as the depreciation method condoned by the IRS and is in force today. It is exceedingly similar to ACRS save for two key features; the number of property classes was expanded, a half year convention was added to the code for the first and final years of a properties recovery life. It was meant to stimulate capital purchasing by lowering the after tax net present value by allowing for faster depreciation of capital assets. MACRS allows for more depreciation towards the beginning of the life of the capital asset (similar to double declining balance), allowing the tax deductible depreciation expense to be taken sooner, thus increasing the net present value of the capital purchase, thus allowing a company to retain more income early in the deprecation cycle.
