Tax Reform Series 26 – Recovery Period for MACRS

Plain Language of Change:

  • MACRS recovery periods are changed for property placed in service after December 31, 2017
    • qualified improvement property is assigned a 15 year recovery period
    • the property classes for 15 year leasehold improvement property, retail improvement property & restaurant improvements are eliminated
    • the MACRS alternative depreciation system (ADS) must be used by a electing real property trade or business to depreciate residential rental property, nonresidential real property & qualified improvement property
  • An electing real property trade or business is a real property trade or business that elects out of new rules which disallow deduction for net interest expense in excess of 30 percent of a business’ adjusted taxable income.
  • “Real property trade or business” means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.
  • The ADS period for nonresidential real property is 40 years. The ADS period for residential rental property is reduced from 40 years to 30 years, effective for property placed in service after December 31, 2017.

Detailed Analysis of Recovery Period for MACRS

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