Depreciation: Part 3

The third primary method of depreciating new equipment purchases is MACRS. MACRS stands for Modified Accelerated Cost Recovery System. Publication 946 from the IRS goes through this and all the other types of depreciation.

MACRS uses a predetermined useful life of the equipment in question. For instance, software is 3 years and computers are 5 years. So for computers, MACRS allows for depreciating a 5 year asset over 6 years using the following percentages according to the IRS:


Year 1: 20%
Year 2: 32%
Year 3: 19%
Year 4: 11.5%
Year 5: 11.5%
Year 6: 6%

All these charts are available at the above link to Publication 946. As to whether this method is best, please consult your CPA, CFO or tax professional.

So this is more front loaded than book value, where the computers would be deducted an equal 20% each year but depreciates less in years 4 and 5. It's much less front loaded than the 179 deduction where all 100% is taken in the first year. As you can see there are lots of options and no one size fits all. These factors can be affected by leasing structures so the desire to take advantage of one of these deductions needs to be known by your leasing professional in advance.