ACRS and MACRS are both IRS depreciation systems, and which one you use depends entirely on when the asset was placed in service. The Accelerated Cost Recovery System (ACRS) governs property placed in service from 1981 through 1986. The Modified Accelerated Cost Recovery System (MACRS) replaced it for anything placed in service after 1986 and is the only system available for new acquisitions today. Compared with ACRS, MACRS uses longer recovery periods for buildings, a faster declining-balance method for most equipment, explicit timing conventions, and a straight-line-only rule for real property.
Which System Applies to Your Property
The placed-in-service date is the single controlling fact. Property first put to business use between January 1, 1981, and December 31, 1986, stays on ACRS for its entire recovery period. Property first put to use after 1986 uses MACRS. You do not switch a grandfathered ACRS asset over to MACRS because the calendar has moved on; you keep depreciating it under the original ACRS percentage tables until it is fully written off or disposed of.
Almost every business asset in service today is on MACRS. A narrow transition category exists for property that was acquired under a binding pre-1987 contract but placed in service afterward, which could still qualify for ACRS. At this point nearly all such property has been fully depreciated.
Recovery Periods
ACRS compressed personal property into four classes: 3-year, 5-year, 10-year, and 15-year. Most equipment landed in the 5-year class, cars and light trucks in the 3-year class, and the longer classes were reserved for specialized items like railroad tank cars and public utility property.
MACRS expanded personal property under its General Depreciation System (GDS) to six classes: 3, 5, 7, 10, 15, and 20 years. The added 7-year and 20-year classes let recovery periods track economic lives more closely. Under MACRS, 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.
Real property is where the systems diverge most sharply. ACRS started buildings at a 15-year recovery period in 1981, then Congress lengthened it to 18 years in 1984 and 19 years in 1985. MACRS nearly doubled that: residential rental property is now recovered over 27.5 years, and nonresidential (commercial) real property over 39 years.
Depreciation Methods
Under ACRS you did not really choose a method. You looked up the statutory percentage in the IRS table and multiplied it 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. Salvage value was not subtracted, so the whole original cost was recoverable.
MACRS front-loads deductions more aggressively by default. For 3-, 5-, 7-, 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- and 20-year property the default drops to 150-percent declining balance with the same switch. You can elect straight-line for any class if you prefer level deductions.
The practical effect: a piece of 5-year equipment under MACRS’s 200-percent declining balance generates a larger first- and second-year deduction than the same equipment would have under the ACRS 150-percent tables. MACRS recovery periods sometimes run longer depending on the asset, which can offset some of that acceleration over the full life of the property.
MACRS also has a second subsystem, the Alternative Depreciation System (ADS), which uses straight-line over generally longer recovery periods. ADS is mandatory for certain categories, including tax-exempt use property, tax-exempt bond-financed property, property used predominantly outside the United States, and listed property with business use of 50 percent or less. It is also available as an elective, and once made for a specific asset the election is irrevocable.
Timing Conventions
ACRS baked its timing assumptions into the statutory percentage tables. First-year percentages for personal property reflected roughly a half-year of depreciation, but you never calculated or chose a convention. For real property, Congress added a mid-month convention in 1984. There was no mid-quarter test, so a business could load up on equipment in December and claim the same first-year deduction as if it had bought the equipment in January.
MACRS makes 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, giving you half a year’s deduction regardless of the actual purchase date. If more than 40 percent of the year’s total depreciable basis is placed in service during the last three months of the tax year, the mid-quarter convention kicks in instead. That assigns each asset to the midpoint of the quarter 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, producing 9.5 months of depreciation in the first year rather than a full 12. The mid-quarter test does not apply to real property.
How Buildings Are Treated
Real estate is where the two systems produce the most different results. ACRS allowed accelerated methods for buildings and used short recovery periods (15, then 18, then 19 years). That combination generated large early deductions and made real estate a popular tax shelter in the early 1980s. It also created significant exposure at sale, because gain attributable to accelerated depreciation was recaptured as ordinary income under Section 1250.
MACRS eliminated accelerated depreciation for buildings entirely. Residential rental property uses straight-line over 27.5 years and nonresidential real property uses straight-line over 39 years. Every year’s deduction is essentially the same.
Because MACRS limits buildings to straight-line, there is no “excess” depreciation to recapture as ordinary income when you sell. Gain attributable to straight-line depreciation is taxed as unrecaptured Section 1250 gain, which carries a maximum federal rate of 25 percent. That is generally lower than the ordinary income rates that applied to accelerated depreciation recapture under ACRS.
Recapture on Personal Property
The recapture framework for equipment and other personal property is the same under both systems, but the amounts differ because the depreciation methods differ. When you sell personal property for more than its depreciated value, gain up to the total depreciation claimed is taxed as ordinary income under Section 1245. The amount recharacterized is the lesser of the depreciation you actually deducted or the gain on the sale.
Under ACRS the table percentages were fixed, so the calculation was mechanical: sum the percentages used, and that total is your maximum ordinary income exposure. Under MACRS the same logic applies, but because 200-percent declining balance 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.
Bonus Depreciation and Section 179
Two provisions layer on top of the standard MACRS tables and can accelerate the write-off dramatically. Neither existed during the ACRS era.
Bonus depreciation currently sits at 100 percent under the One Big Beautiful Bill Act, signed in 2025. Qualifying property that is both acquired and placed in service after January 19, 2025, can be deducted in full in the year it is put to use, bypassing the MACRS recovery period tables. This covers new and most used property with a MACRS recovery period of 20 years or less, along with qualified improvement property. The 100-percent rate is permanent under current law. 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. Taxpayers can elect out on a class-by-class basis.
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 capped at your taxable business income for the year, so it cannot create or increase a net operating loss. The two can be used together, with any leftover cost falling back to the regular MACRS tables.
Where to Report Each System
Both systems are reported on IRS Form 4562, Depreciation and Amortization. MACRS deductions go in Part III of the form; ACRS deductions for any surviving grandfathered property go in Part IV. Keep separate records for any ACRS asset still on the books, because the recovery classes, percentage tables, and convention rules do not match anything else on the return.