How to Use MACRS Depreciation

by Bradley James Bryant; Updated September 26, 2017
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MACRS (modified asset cost recovery system) method is used for income tax purposes and is the accelerated depreciation methodology required by the United States. Unlike the straight-line method, which requires estimations for salvage value of the asset and its useful life, MACRS is based on a percentage chart published by the IRS.

Items you will need

  • Form 4562
  • MACRS Percentage Chart (IRS Publication 946)
Step 1

Look up your MACRS percentage on a table. The IRS publishes these tables in Appendix A of IRS Publication 946 (see Resources).

Step 2

Look up the percentage by the depreciation rate of recovery and depreciation year. Let's use a $10,000 copy machine purchased for a five-year property.

Step 3

Go to the table for five year property and the following percentages are used: year 1 at 20 percent, year 2 at 32 percent, year 3 at 19.20 percent, years 4 and 5 at 11.52 percent; and, the final year 6 at 5.76 percent.

Step 4

Calculate yearly depreciation. Take year 1 depreciation and multiply by $10K [$10,000 * .20 (Year 1 MACRS depreciation percentage)]. In year 2 you would write off $10,000 * .32 (year 2 MACRS depreciation percentage), and so on until you've written the entire value of the copy machine off at the end of year 6.

Step 5

Download Form 4562 from the IRS website. Enter the information from Step 3 for the current tax year, in Part III, 19b.

Step 6

Recapture depreciation. Disposition of the asset must be captured as a gain and included in ordinary income. See IRS Publication 544 for specific details.

Tips

  • Step 4 help: MACRS depreciation assumes that assets are purchased mid-year and therefore depreciate mid year. There is no salvage value.

Warnings

  • This is not to be construed as tax advice.

About the Author

Working as a full-time freelance writer/editor for the past two years, Bradley James Bryant has over 1500 publications on eHow, LIVESTRONG.com and other sites. She has worked for JPMorganChase, SunTrust Investment Bank, Intel Corporation and Harvard University. Bryant has a Master of Business Administration with a concentration in finance from Florida A&M University.

Photo Credits

  • http://www.clevelandfed.org/research/trends/2008/0108/01intmar-1.gif