Question

What is a modified accelerated cost recovery system (MACRS)? Speculate as to why this system is no required for fax purposes.

Answer 1

Ans. The modified accelerated cost recovery system (MACRS) is a depreciation system. MACRS depreciation allows the capitalized cost of an asset to be recovered over a specified period via annual deductions. The MACRS system puts fixed assets into classes that have set depreciation periods.

The modified accelerated cost recovery system (MACRS) is the proper depreciation method for most assets. MACRS allows for greater accelerated depreciation over longer time periods. This is beneficial since faster acceleration allows individuals and businesses to deduct greater amounts during the first few years of an asset's life, and relatively less later.

The basis for depreciation of MACRS property is the property's cost basis multiplied by the percentage of business/investment use. The amount derived is recognized in the company’s income tax return and used to determine taxable income by factoring in any tax credits and deductions that can be claimed on the property.