Landlords and investors in rental housing may use accelerated methods of depreciation for new and used rental housing. Straight-line depreciation over the property's expected useful life is the generally accepted method for recovering cost, which is close to economic depreciation. However, through the past decades, systems which adopt accelerated depreciation methods have been introduced. The current system is MACRS (Modified Accelerated Cost Recovery System) which was enacted in 1986. This system further accelerated the rate of recovery of depreciation than under ACRS (Accelerated Cost Recovery System) which was enacted in 1981. Differences between MACRS and ACRS are 1) deductions from the 150% declining balance method to 200-percent declining balance; 2) certain assets were reclassified and the number of asset classes (80) was increased; and 3) the recovery period for residential rental property was extended to 27.5 years and for nonresidential real property to 39 years. For details, refer to the document, Background and Present Law Relating to Cost Recovery and Domestic Production Activities, which was published by the Joint Committee on Taxation in their homepage on March 6th, 2012.
The excess of allowable depreciation over economic depreciation constitutes a tax expenditure, resulting in a deferral of tax or an interest-free loan.
The Tax Cuts and Jobs Act (TCJA) provides that an electing real property trade or business must use the alternative depreciation system for its residential or nonresidential real property. The alternative depreciation system period for nonresidential real property remains 40 years, while the period for residential real property is now 30 years.
Origin: IRC § 168
Corporate Excise Tax
Accelerated Deductions from Gross Income
2.301
Modified Accelerated Cost Recovery System on Rental Housing
Landlords and investors in rental housing may use accelerated methods of depreciation for new and used rental housing. Straight-line depreciation over the property's expected useful life is the generally accepted method for recovering cost, which is close to economic depreciation. However, through the past decades, systems which adopt accelerated depreciation methods have been introduced. The current system is MACRS (Modified Accelerated Cost Recovery System) which was enacted in 1986. This system further accelerated the rate of recovery of depreciation than under ACRS (Accelerated Cost Recovery System) which was enacted in 1981. Differences between MACRS and ACRS are 1) deductions from the 150% declining balance method to 200-percent declining balance; 2) certain assets were reclassified and the number of asset classes (80) was increased; and 3) the recovery period for residential rental property was extended to 27.5 years and for nonresidential real property to 39 years. For details, refer to the document, Background and Present Law Relating to Cost Recovery and Domestic Production Activities, which was published by the Joint Committee on Taxation in their homepage on March 6th, 2012. <BR><BR>The excess of allowable depreciation over economic depreciation constitutes a tax expenditure, resulting in a deferral of tax or an interest-free loan.<BR><BR>The Tax Cuts and Jobs Act (TCJA) provides that an electing real property trade or business must use the alternative depreciation system for its residential or nonresidential real property. The alternative depreciation system period for nonresidential real property remains 40 years, while the period for residential real property is now 30 years.
<a href="http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000168----000-.html" target="_blank">IRC § 168</a>
5.0
6.9
6.9
6.7
6.0
