For depreciable tangible personal property placed in service after 1980, capital costs may be recovered using the Accelerated Cost Recovery System (ACRS), which applies accelerated methods of depreciation over set recovery periods. For property placed in service after 1987, Massachusetts has adopted the Modified Accelerated Cost Recovery System (MACRS), which consists of General Depreciation System (GDS) and Alternative Depreciation System (GDS). GDS generally uses accelerated depreciation, while ADS uses straight-line depreciation. The accelerated depreciation is double declining balance depreciation over specified periods that are substantially shorter than actual useful lives (200% declining balance for 3-, 5-, 7- and 10-year recovery property and 150% declining balance for 15- and 20-year property). The excess of accelerated depreciation over straight-line depreciation constitutes a tax expenditure, resulting in a deferral of tax or an interest-free loan.
According to the Tax Cuts and Jobs Act (TCJA), the General Depreciation System period for farming equipment and machinery placed into service after December 31, 2017 changed from 7 years to 5 years. In addition, such equipment may also be depreciated using the 200% declining balance method. Previously, such equipment had to be depreciated using the 150% declining balance method. In addition, the TCJA added a new property classification of assets, qualified improvement property ("QIP"), defined under Code § 168(e)(6)(A), that generally includes interior, non-structural improvements to nonresidential buildings placed-in-service after the buildings were originally placed-in-service. Qualifying nonresidential buildings include, but are not limited to, hospitals, banks, manufacturing facilities, casinos, hotels, and offices. Under the TCJA QIP's depreciable life was 39 years.
The CARES Act assigned QIP a 15-year depreciable life under GDS, and a 20-year depreciable life under ADS. Prior to the CARES Act, the depreciable life of QIP was 39 years. The changes apply to any QIP placed in service after December 31, 2017. Rev. Proc. 2020-25, released on April 17, 2020 outlines the options available to taxpayers to correct their treatment of QIP placed in service in a tax year ending in 2018, 2019, or 2020.
For the past decade, the federal government has allowed "bonus depreciation" which further accelerates depreciation for assets placed in service in certain years. However, Massachusetts is decoupled from it. For further discussion, see TIR 03-25.
Origin: IRC § 168