Determining Depreciation Recovery Periods
Determining the correct monthly depreciation amounts for an asset requires the correct usage of recovery periods. Under MARCS, assets are assigned to a property class such as 3 year, 5 year, 7 year, nonresidential real property, etc. Associated with each property class is a recovery period in 12 month intervals (years).
The first actual recovery period of an asset is determined by when the asset is placed in service along with the particular convention being used. Here is an example of an asset that is considered 7-year property with a 7-year recovery period. Suppose the asset is acquired in 2009 and uses a half-year convention. The recovery period would start on July 1, 2009. Thus, because of the half-year convention, depreciation deductions can be expensed through June 30, 2016.
Additional considerations must also be given to which depreciation rules are being followed: General MACRS Depreciation Rules (GDS) or Alternative MACRS Depreciation Rules (ADS). Typically, the recovery periods under ADS are longer than GDS. For example, residential rental property has a recovery period of 40 years under ADS, but just 27.5 years under GDS. Below is a chart that provides more examples of common business assets and their associated recovery periods under GDS and ADS
| Table B – 1: Common Business Assets | Recovery Period (In Years) | ||
| GDS | ADS | ||
| 0.11 | Office Furniture & Equipment | 7 | 10 |
| 0.12 | Computers & Related Equip | 5 | 5 |
| 0.13 | Office Machines | 5 | 6 |
| 0.21 | Airplane (airframe & engines) | 5 | 6 |
| 0.22 | Autos & Taxis | 5 | 5 |
| 0.23 | Buses | 5 | 9 |
| 0.241 | Light General Purpose Truck (<13k lbs) | 5 | 5 |
| 0.242 | Heavy General Purpose Truck (>13k lbs) | 5 | 6 |
| 0.25 | Railroad Car & Locomotives, except owned by a Railroad | 7 | 15 |
| 0.26 | Tractor Unit (tractor-trailer) | 3 | 4 |
| 0.27 | Trailer & Trailer Mounted Container | 5 | 6 |
| 0.28 | Vessels, Barges & Tugs | 10 | 18 |
| 0.3 | Land Improvements (1245 or 1250 Property) | 15 | 20 |
| 0.4 | Industrial Steam & Electric Generation & Distribution | 15 | 22 |
| B.1 | Residential Rental Property | 27.5 | 40 |
| B.2 | Nonresidential Real Property, pre 5/13/93 | 31.5 | 40 |
| B.3 | Nonresidential Real Property, post 5/12/93 | 39 | 40 |
| B.4 | Computer Software | 3 | |
| B.5 | Trees or Vines Bearing Fruit or Nuts | 10 | 20 |
| B.6 | Qualified Leasehold / Restaurant Leasehold Property | 15 | 39 |
| B.7 | New York Liberty Zone Leasehold Improvement Property | 5 | 9 |
At this point, you may be asking how the actual recovery period for an asset is determined. The answer is that the recovery period is normally established from the class life of the property. For a more detailed understanding of class life periods, click here for the post on this topic.