ATG Ch. 6.C — MACRS Depreciation Overview

Where this comes from

Congress created MACRS (Modified Accelerated Cost Recovery System) in the Tax Reform Act of 1986. It replaced the old ACRS system and assigned every asset a recovery period tied to a master table in Rev. Proc. 87-56.

Chapter 6.C of the IRS Cost Segregation ATG is the guide's own summary of how MACRS works in a cost segregation context. It is the reference that connects every line in a study back to Section 168 and the class-life tables.

What it says

The chapter walks through the four recovery periods that matter most in a study. Five years covers personal property with class lives between 4 and less than 10 years. Process wiring for equipment and specialty systems often land here. Seven years covers personal property with class lives between 10 and less than 16 years. Fifteen years covers land improvements such as paving, parking lots, landscaping, and outdoor lighting. Thirty-nine years covers nonresidential real property (27.5 years for residential rental).

It also explains the three depreciation methods. The 200% declining-balance method applies to 5 and 7-year property. The 150% declining-balance method applies to 15-year land improvements. Straight-line applies to real property and to taxpayers who elect out of accelerated methods.

Conventions control the first and last year. The half-year convention applies to most personal property. The mid-quarter convention applies if more than 40% of personal property is placed in service in the fourth quarter. The mid-month convention applies to real property.

How it shows up in a study

Chapter 6.C is the framework the study lives inside. Every recovery-period assignment maps to a class life in Rev. Proc. 87-56, and every method and convention assignment follows from that class.

The chapter also makes the connection explicit: when a study reclassifies an asset from 39 years to 5 or 7 years, that asset now qualifies for bonus depreciation under Section 168(k) and may qualify for immediate expensing under Section 179. Those are often the biggest part of the study's benefit. The chapter cites both provisions directly.

What it does not mean

Chapter 6.C is the IRS's own summary, but it is not binding law. Courts interpret Section 168 and Rev. Proc. 87-56 independently.

The chapter also does not decide whether a component qualifies as personal property in the first place. That question is answered by the inherently permanent test in Ch. 6.E and the case law. Ch. 6.C only sets the recovery period once that call is made.