Modified Accelerated Cost Recovery System (MACRS) Example
Use the MACRS tax depreciation method to recover the capitalized cost (basis) of tangible property that was placed in service after 1986.
MACRS is made up of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). These systems offer different methods and recovery periods for determining depreciation deductions. GDS is most commonly used.
Deltek uses the following information to calculate MACRS depreciation:
| Field | Description | Location |
|---|---|---|
| Code and Description | Enter the code and description to use for the depreciation method. The code displays in the Methods drop-down list on the Asset Type tab of the Asset Management Settings form, and the Description displays in the Method drop-down list on the GL Book tab in the Equipment hub. | Methods tab of |
| Useful Life in Years | Determines how many periods, in total, should be applied to the depreciation method. For all depreciation methods except straight-line, you can only modify the useful life in years on the Methods tab. | Methods tab of |
| Asset Periods Per Year | Select the number of asset periods per year to synchronize the asset calendar with the fiscal calendar. This setting applies only if your instance of Deltek is set up for 13 periods and allows you to select either 12 or 13 asset periods per year. | General tab of |
Deltek defaults to applying the full month convention for depreciation; however you can configure the depreciation rate to best suit your enterprise's requirements.
For example, when setting up the MACRS half-year convention, you could reference the following table, which is provided by the IRS:
|
Year |
Depreciation Rate for Recovery Period | |||||
|---|---|---|---|---|---|---|
| 3-year | 5-year | 7-year | 10-year | 15-year | 20-year | |
| 1 | 33.33 | 20.00 | 14.29 | 10.00 | 5.00 | 3.750 |
| 2 | 44.45 | 32.00 | 24.49 | 18.00 | 9.50 | 7.219 |
| 3 | 14.81 | 19.20 | 17.49 | 14.40 | 8.55 | 6.677 |
| 4 | 7.41 | 11.52 | 12.49 | 11.52 | 7.70 | 6.177 |
| 5 | 11.52 | 8.93 | 9.22 | 6.93 | 5.713 | |
| 6 | 5.76 | 8.92 | 7.37 | 6.23 | 5.285 | |
| 7 | 8.93 | 6.55 | 5.90 | 4.888 | ||
| 8 | 4.46 | 6.55 | 5.90 | 4.522 | ||
| 9 | 6.56 | 5.91 | 4.462 | |||
| 10 | 6.55 | 5.90 | 4.461 | |||
| 11 | 3.28 | 5.91 | 4.462 | |||
| 12 | 5.90 | 4.461 | ||||
| 13 | 5.91 | 4.462 | ||||
| 14 | 5.90 | 4.461 | ||||
| 15 | 5.91 | 4.462 | ||||
| 16 | 2.95 | 4.461 | ||||
| 17 | 4.462 | |||||
| 18 | 4.461 | |||||
| 19 | 4.462 | |||||
| 20 | 4.461 | |||||
| 21 | 2.231 | |||||
Go to the Methods tab in , enter the MACRS depreciation Code and Description in the Depreciation Methods grid, and enter4 as the Useful Life in Years. When you select this grid row, the Secondary grid automatically populates with four rows, where you can enter the percentages for the 3-year depreciation rate for recovery method that is defined in the table shown above. For example, enter the following information in the grid:
| Year | Periods | Percentage |
|---|---|---|
| 1 | 6 | 44.45% |
| 2 | 12 | 33.33% |
| 3 | 12 | 14.81% |
| 4 | 6 | 7.41% |
As you can see, these percentages are in alignment with the three-year column shown on the IRS table. If you then purchase an asset item for $200,000 that falls into the MACRS three-year, half-year convention schedule, the depreciation calculation will occur as follows:
| Year | Periods | Percentage of$200,000 | Depreciation Amount based on $200,000 |
|---|---|---|---|
| 1 | 6 | 44.45% | $88,900 |
| 2 | 12 | 33.33% | $66,660 |
| 3 | 12 | 14.81% | $29,620 |
| 4 | 6 | 7.41% | $14,820 |
IRS Publication 946 provides detailed information for using the MACRS method of depreciation. Refer to this document for further information: http://www.irs.gov/uac/About-Publication-946