Question

MACRS depreciation requires the use of a recovery period, method, and convention to depreciate tangible personal property assets. Briefly explain why each is important to the calculation. I need in simple way please

Answer 1

Recovery period is the statutory life or the amount of period over which a taxpayer will divide the depreciation expense. The taxpayer whose sole motive is to earn profit will prefer the recovery period to be as short as possible, so that they may recover the basis as early as possible.

The method of MACRS is nothing else but Double-declining method( 200% Diminishing balance method). However, taxpayers may opt either the 150% DB method, to avoid calculating both regular and Automatic Manual Transmission(AMT) depreciation or straight line method to elongate depreciation expenses for taxpayers.

The convention explains that what proportion of depreciation is taken in both the year of acquisition and year of disposition of the asset.The half-year convention is employed to simplify the calculation of depreciation based on the quantity of days, an asset was owned during the year.