a method of accelerated depreciation permitted by tax codes, as modified by recent changes. It classifies depreciable assets into one of several recovery periods, each of which has a designated pattern of allowable depreciation (double-declining balance, 150% declining balance, or straight-line with a half-year convention).

provision, originally called the Accelerated Cost Recovery System (ACRS), instituted by the Economic Recovery Tax Act of 1981 (ERTA) and modified by the Tax Reform Act of 1986, which establishes rules for the depreciation (the recovery of cost through tax deductions) of qualifying assets. With certain exceptions, the 1986 Act modifications, which generally provide for greater acceleration over longer periods of time than ERTA rules, are effective for property placed in service after 1986.

Under the modified rules, depreciable assets other than buildings fall within a 3-, 5-, 7-, 10-, 15-, or 20-year class life. The 3-, 5-, 7-, and 10-year classes use the Double Declining Balance depreciation method, with a switch to straight line depreciation. Instead of the 200% rate, you may elect a 150% rate. For 15- and 20-year property, the 150% declining balance method is used with a switch to straight line. The conversion to straight line occurs when larger annual deductions may be claimed over the remaining life. Real estate uses the straight line basis. Residential rental property placed in service after December 31, 1986, is depreciated over 27.5 years, while nonresidential property placed in service between December 1, 1986, and May 13, 1993, is depreciated over 31.5 years. A 39-year period applies to nonresidential property placed in service after May 12, 1993, although certain transition rules apply.

method recognizing higher amounts of depreciation in the earlier years and lower amounts in the later years of a fixed asset's life. Some machines, for example, are more efficient early on and generate greater service potential; matching dictates higher depreciation expense in those years. Over time, depreciation expense moves in a downward direction and maintenance costs tend to become higher; thus the effect of accelerated depreciation is fairly even charges to income. Greatest tax benefits from depreciation are enjoyed in the earlier years.

provision, originally called the Accelerated Cost Recovery System (ACRS), instituted by the Economic Recovery Tax Act of 1981 (ERTA) and modified by the Tax Reform Act of 1986, which establishes rules for the depreciation (the recovery of cost through tax deductions) of qualifying assets. With certain exceptions, the 1986 Act modifications, which generally provide for greater acceleration over longer periods of time than ERTA rules, are effective for property placed in service after 1986.

Under the modified rules, depreciable assets other than buildings fall within a 3-, 5-, 7-, 10-, 15-, or 20-year class life. The 3-, 5-, 7-, and 10-year classes use the Double Declining Balance depreciation method, with a switch to straight line depreciation. Instead of the 200% rate, you may elect a 150% rate. For 15- and 20-year property, the 150% declining balance method is used with a switch to straight line. The conversion to straight line occurs when larger annual deductions may be claimed over the remaining life. Real estate uses the straight line basis. Residential rental property placed in service after December 31, 1986, is depreciated over 27.5 years, while nonresidential property placed in service between December 1, 1986, and May 13, 1993, is depreciated over 31.5 years. A 39-year period applies to nonresidential property placed in service after May 12, 1993, although certain transition rules apply.