MACRS (Modified Accelerated Cost Recovery System)- MACRS is a system of recovering the cost of qualifying assets over a period of time as specified by the Internal Revenue code. Qualifying assets are personal property and real property acquired after 1986. Certain assets do not qualify for MACRS depreciation, including intangible assets such as trademarks, patents, goodwill, and off-the-shelf computer software. Instead, intangibles are amortized; goodwill over a 15-year period, and off-the-shelf computer software over a 3-year period.

The MACRS system specifies the recovery period and the depreciation method to be used. Typical asset recovery periods for personal property are 3, 5, 7 10, 15 and 20 years. Typical recovery periods for real property are 27.5, 31.5, and 39 years. Refer to the table below for typical MACRS recovery periods for certain assets. See Rev. Proc. 87-56 (1987-2 CB 674) as modified by Rev Proc. 88-22 (1988-1 CB 785) for the complete table of class lives and recovery periods published by the IRS.

MACRS uses the 200% declining-balance method (with a switch to straight-line in the year it is more advantages) for all personal property except personal property with 15 and 20 year recovery periods. For personal property with 15 and 20 year recovery periods, the 150% declining-balance method is used (switching to straight-line in the year it is more advantages). For real property, the straight-line method of depreciation is used. Salvage value is ignored under MACRS.

In addition, MACRS specifies certain conventions for the first and last years of the recovery period. For personal property, the half-year convention applies. That is, in the year of acquisition and in the last year, a half-year of depreciation is allowed, no matter how long the asset is actually in service during its first or last year. In the year personal property is disposed of, a half-year of depreciation is also allowed. No depreciation is allowed if the asset is both acquired and disposed of during the same tax year.

There is an exception to the half-year convention that applies to all property except real property, and that is called the mid-quarter convention. If more than 40% of the total cost of such personal property is placed in service during the last three months of the tax year, then the mid-quarter convention applies and all property placed in service during any quarter of that tax year is treated as placed in service as the mid-point of such quarter. For purposes of the 40% test, the basis of property which has been expensed under Section 179, and property that was both acquired and disposed of in the same year are excluded. Tables showing the mid-quarter convention are shown at item 5 below.

For real property, the mid-month convention applies. Under this convention, a half-month of depreciation is allowed for the month the real property is acquired, and a half-month is allowed in the final month of the property's recovery period. In addition, a half-month is allowed in the month the real property is disposed. For example, if real property is acquired of during a calendar year on July 1st, 5.5 months of depreciation will be allowed during the first year.

Note that the AMT lives are the same for both regular tax and AMT purposes for assets placed in service in 1999 and later. However, prior to 1999, the AMT lives in most cases were different for AMT purposes than they were for regular tax purposes (see column D below).

(A)   Property Type	(B)   MACRS Recovery Period	(C) AMT Recovery Period (1999 to Present)	(D) AMT Recovery Period (1998 & Prior)
Autos	5 Years	5 Years	5 Years
Trucks-light general purpose (less than 13,000 lbs.)	5 Years	5 Years	5 Years
Trucks-heavy general purpose (13,000 lbs or more)	5 Years	5 Years	6 Years
Boats	10 Years	10 Years	18 Years
Computers & peripherals	5 Years	5 Years	5 Years
Telephone systems	5 Years	5 Years	5 Years
Cellular telephones & PDA's	5 Years	5 Years	6 Years
Typewriters, calculators, copy machines, & fax machines	5 Years	5 Years	6 Years
Office furniture - desks, chairs, filing cabinets, safes, etc.	7 Years	7 Years	10 Years
Carpets & blinds	5 Years	5 Years	9 Years
Race horses, more than 2 years old	3 Years	3 Years	12 Years
Breeding or work horses, 12 years old or less	7 Years	7 Years	10 Years
Assets used in wholesale & retail trade, and professional services	5 Years	5 Years	9 Years
Assets used in construction activities ( i.e., by general contractors, real estate subdividers, & developers)	5 Years	5 Years	6 Years
Personal property with no class life	7 Years	7 Years	12 Years
Land improvements (sidewalks, roads, fences, landscaping)	15 Years	15 Years	20 Years
Residential real property	27.5 Years	27.5 Years	40 Years
Commercial real property (1/1/87 to 5/12/93)	31.5 Years	31.5 Years	40 Years
Commercial real property (5/13/93 to present)	39 Years	39 Years	40 Years