ACRS vs. MACRS comes down to when the asset was placed in service: the Accelerated Cost Recovery System governs business property placed in service from 1981 through 1986, and the Modified Accelerated Cost Recovery System has governed everything placed in service after 1986. MACRS is the only system available for new acquisitions today. The two use different recovery periods, different depreciation methods, different timing conventions, and treat buildings very differently.
Which System Applies to Your Property
The placed-in-service date is the single most important fact. If an asset started being used in your business between 1981 and 1986 and you still hold it, you continue depreciating it under the original ACRS percentage tables. You do not switch an asset to MACRS because the law changed; the system that applied in year one applies for the asset’s entire recovery life.
Anything placed in service from 1987 onward uses MACRS. There is no election to use ACRS on newer property, and there has not been for nearly four decades. For most businesses, every active asset on the depreciation schedule is MACRS property, and ACRS is a historical footnote that occasionally surfaces for very long-lived equipment or real estate acquired in the mid-1980s.
MACRS itself has two subsystems. The General Depreciation System (GDS) is the default. The Alternative Depreciation System (ADS) uses straight-line depreciation over generally longer periods and is required for specific categories, including tax-exempt use property, tax-exempt bond-financed property, property used predominantly outside the United States, and listed property used 50 percent or less for business. ADS is also available by election on any asset, but once elected for a specific asset the choice is irrevocable.
Recovery Period Differences
ACRS used a compressed set of recovery classes for personal property: 3-year, 5-year, 10-year, and 15-year. Most equipment landed in the 5-year class, cars and light trucks were 3-year property, and the 10-year and 15-year classes were reserved for specialized items like railroad tank cars and public utility property. The simplicity was intentional; Congress wanted fast write-offs, not precision about useful life.
MACRS GDS expanded personal property to six classes: 3, 5, 7, 10, 15, and 20 years. The 7-year class absorbs most business equipment that has no designated class life, which means more assets get a recovery period that roughly tracks how long you will actually use them. Automobiles are 5-year property, office furniture is 7-year property, and land improvements like fences and parking lots are 15-year property. Publication 946 contains the full classification tables.
The real property gap is wider. ACRS started real property at a 15-year recovery period in 1981, lengthened it to 18 years in 1984, and then to 19 years in 1985. MACRS set residential rental property at 27.5 years and nonresidential (commercial) real property at 39 years. That change dramatically slowed the annual deduction for building owners.
Depreciation Method Differences
ACRS did not really let you choose a method. You used the statutory percentage tables published by the IRS and multiplied them by the asset’s cost. Those tables approximated 150-percent declining balance for personal property. The only alternative was electing straight-line over the regular or an extended recovery period. There was no option for more aggressive acceleration, and because ACRS eliminated the old salvage-value requirement, the full cost of the asset was recoverable.
MACRS uses a faster starting method by default. For 3-year, 5-year, 7-year, and 10-year property, the standard method is 200-percent declining balance, switching to straight-line in the year straight-line produces a larger deduction. For 15-year and 20-year property, the default drops to 150-percent declining balance with the same switch. You can also elect straight-line within any class if you prefer level deductions.
The practical effect is that MACRS front-loads deductions more aggressively than ACRS did for short-lived property. A piece of 5-year equipment under MACRS 200-percent declining balance generates a larger first- and second-year deduction than the same equipment would have under the ACRS 150-percent tables. The trade-off is that some MACRS recovery periods are longer than their ACRS counterparts, which can offset part of the acceleration.
Timing Conventions
ACRS baked its timing assumptions straight into the percentage tables. First-year percentages for personal property reflected roughly a half-year of depreciation, but you never calculated or chose a convention yourself. Real property picked up a mid-month convention in 1984. There was no mid-quarter test, so a business could load up on equipment in December and get the same first-year deduction as if it had bought in January.
MACRS makes the conventions explicit and adds an anti-abuse rule. The default half-year convention treats every asset as placed in service at the midpoint of the tax year. If you place more than 40 percent of the year’s total depreciable basis in service during the last three months of the year, though, the mid-quarter convention kicks in. That convention assigns each asset to the midpoint of the quarter in which it was actually acquired, which shrinks the first-year deduction for late-year purchases substantially.
Real property under MACRS uses the mid-month convention. A building placed in service on March 20 is treated as placed in service on March 15, giving you 9.5 months of depreciation in year one rather than a full 12. The mid-quarter test does not apply to real property.
How Buildings Are Treated
Buildings are where the two systems diverge most sharply. ACRS allowed accelerated depreciation methods for real property and assigned recovery periods as short as 15 years, later 18 and then 19. That combination generated large early deductions and made real estate an attractive tax shelter in the early 1980s. It also created significant depreciation recapture exposure on sale, because gain attributable to accelerated depreciation on real property is treated as ordinary income under Section 1250.
MACRS eliminated accelerated depreciation for buildings entirely. Residential rental uses straight-line over 27.5 years. Nonresidential real property uses straight-line over 39 years. Those are among the longest recovery periods in the tax code, and the straight-line method means annual deductions are essentially level.
Because MACRS limits buildings to straight-line, there is no excess depreciation to recapture as ordinary income. The gain attributable to straight-line depreciation on a MACRS building is taxed as unrecaptured Section 1250 gain, which carries a maximum federal rate of 25 percent rather than the higher ordinary rates that applied to accelerated depreciation recapture under ACRS.
Recapture When You Sell
For personal property, the mechanics are the same under both systems. When you sell equipment for more than its depreciated value, the gain up to the total depreciation you claimed is taxed as ordinary income under Section 1245. The amount recharacterized is the lesser of the depreciation actually deducted or the gain on the sale.
Under ACRS, the statutory percentages were fixed, so adding them up gave you your maximum ordinary income exposure. Under MACRS, the same logic applies, but because the 200-percent declining balance method front-loads larger deductions into the early years, selling an asset shortly after purchase can trigger a proportionally larger recapture hit. Worth keeping in mind if you plan to dispose of recently acquired equipment.
What MACRS Adds That ACRS Never Had
Two provisions sit on top of the MACRS tables and can accelerate the write-off far beyond anything ACRS allowed. Neither existed during the ACRS era.
Bonus Depreciation
Under the One Big Beautiful Bill Act, signed in 2025, qualifying property that is both acquired and placed in service after January 19, 2025, is eligible for 100-percent bonus depreciation. You can deduct the entire cost of an eligible asset in the year you start using it, bypassing the MACRS recovery period tables. This applies to new and most used property with a MACRS recovery period of 20 years or less, as well as qualified improvement property. The 100-percent rate is permanent under current law and does not phase down.
Property acquired before January 20, 2025, but placed in service in 2026 falls under the older phase-down schedule, which provides only 20-percent bonus depreciation for 2026. The acquisition date triggers the distinction, so timing purchases around that cutoff matters. Taxpayers who do not want bonus depreciation on a particular class can elect out on a class-by-class basis for the tax year.
Section 179 Expensing
Section 179 lets you deduct the full cost of qualifying equipment and software in the year of purchase, up to a dollar cap. The base limit is $2,500,000, and the deduction phases out dollar-for-dollar once total qualifying property placed in service during the year exceeds $4,000,000. Both thresholds are adjusted upward each year for inflation. Unlike bonus depreciation, Section 179 is limited to the amount of your taxable business income for the year, so it cannot create or increase a net operating loss.
Section 179 and bonus depreciation can be used together. A common approach is to apply Section 179 to specific assets where you want targeted expensing and let bonus depreciation cover the rest. Anything not covered by either provision falls back to the regular MACRS tables.
Cost Segregation for Buildings
A cost segregation study is the main strategy property owners use to work around MACRS’s slow recovery periods for buildings. The study breaks a building into its component parts and reclassifies items that qualify as personal property or land improvements into shorter MACRS classes. Electrical systems serving specific equipment, decorative finishes, and specialized plumbing can move from 39-year building property into 5-year, 7-year, or 15-year classes. That shortens the recovery period for those components and also makes them eligible for bonus depreciation, which the building shell itself is not.
Reporting ACRS Assets That Are Still on the Books
Both systems are reported on IRS Form 4562, Depreciation and Amortization. MACRS deductions go in Part III. ACRS deductions for grandfathered property are reported in Part IV. If you still hold an asset placed in service between 1981 and 1986 that has not been fully depreciated or disposed of, keep separate records: the recovery classes, percentage tables, and convention rules differ from everything else on the return.
A narrow transition category also exists for property acquired under binding contracts before 1987 but placed in service afterward, which may still qualify for ACRS treatment. At this point nearly all such property has been fully depreciated, so for practical purposes the placed-in-service date is what tells you which system governs the asset in front of you.