Question

Briefly explain – • which MACRS convention is generally applicable to PP&E (equipment), and • what other two MACRS conventions there are and exactly when or under what circumstances they would be mandatory.

Answer 1

MACRS stands for modified accelerated cost recovery system. It is the current system allowed in the United States to calculate tax deductions on account of depreciation for depreciable assets (other than intangible assets). IRS Form 4562 is used to claim depreciation deduction. It allows a larger deduction in early years and lower deductions in later years when compared to the straight-line method.

Generally, PPE (equipment), machinery or office supplies all these personal assets use half-yearconvention for MACRS depreciation.

There are two main depreciation systems that taxpayers may use to depreciate property under MACRS depreciation – the Alternative Depreciation System (ADS) and the General Depreciation System (GDS). The system selected will determine the recovery period and depreciation method to use. Generally, taxpayers are expected to use GDS, but there are situations when the law requires them to use ADS or when taxpayers may elect to use the ADS system.

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