What does the Modified Accelerated Cost Recovery System (MACRS) allow?

The Modified Accelerated Cost Recovery System (MACRS) allows for faster depreciation over specified shorter recovery periods, typically for business assets. Under MACRS, certain assets are assigned a predetermined recovery period (such as 5, 7, or 15 years), and the depreciation for those assets is accelerated, which means businesses can deduct a larger portion of the asset's cost in the earlier years of its useful life. This approach is beneficial for businesses as it enables them to recover their investment costs more quickly, which can improve cash flow and reduce taxable income in the early years after acquiring an asset.

MACRS was designed specifically to facilitate a quicker recovery of investments, encouraging businesses to reinvest in their operations. This method differs from standard depreciation approaches, which usually allocate depreciation expense more evenly over the life of the asset. In this context, faster depreciation does not mean longer periods; rather, it refers to the ability to recover costs more rapidly within those specified shorter periods.