What Is ACRS Depreciation?

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Depreciation is a common part of business expense. While depreciation of buildings, property and equipment can’t be avoided, it can be used to benefit the business on taxes. Accelerated Cost Recovery System (ACRS) was enacted in 1981 as part of the Economic Recovery Tax Act. This tax rule applies to personal and real property.

Definition

Depreciation is the loss of value of property over a given period of time of use. ACRS depreciation is the modified method of depreciation that the IRS set up in place of the Asset Depreciation Range that was the preferred method of calculating depreciation in the 1970s. The ACRS allows for the recovering of cost related to personal and real property that was actively used during that time.

What ACRS Depreciation Applies To

Property that can be assessed for depreciation under ACRS must be new or used, real and/or personal property. The property must have been used in the service of a trade or business venture with the intention of creating income. To be applicable for the ACRS depreciation, the new or used property must have been purchased between 1981 and 1987.

Non-Qualified Property

Not all property that is purchased between 1981 and 1987 can be applied to ACRS depreciation. Property that has been depreciated under another qualified method and originally excluded from ACRS depreciation cannot be filed under the ACRS method. Property that is intangible is excluded from the ACRS depreciation and certain types of public utility property cannot be applied to ACRS depreciation rules.

Disposition

If a property is sold, abandoned or traded, it is permanently removed from the use of generating income for a trade or business. This withdrawal of property is recognized by the IRS as a disposition and is reflected in taxes as a gain or loss on the disposition. These gains can affect the amount of depreciation that is allowed for the item in the given tax year.

Early Disposition

Disposing of an asset before the end of the specified recovery period as defined by ACRS is referred to as early disposition. The depreciation that is allowed the year that the property is disposed of depends on the property classification. Some ACRS classifications will allow for the scheduled deduction in the year that the property is disposed of.

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