Modified Accelerated Cost Recovery System

A method for writing off costs associated with purchasing assets. MACRS was introduced as part of the Tax Reform Bill of 1986. It does away with the concepts of estimated useful life and residual value in calculating the value of recorded assets. The intent was to encourage businesses to invest in new plants and equipment by allowing them to write off assets rapidly. MACRS accelerates the write-off of investments by allowing a recovery period shorter than the estimated useful life of the asset, in contrast to standard depreciation rules. MACRS allows businesses to recover the majority of the cost of the investments early in the depreciation schedule. Despite its acceptance by Congress, this type of a depreciation schedule isn’t accepted for financial reporting under generally accepted accounting principles because the recovery periods are shorter than the depreciable assets’ estimated useful life.