Accelerated Cost Recovery System (ACRS)

Written By:
Paul Tracy
Updated September 30, 2020

What is the Accelerated Cost Recovery System (ACRS)?

The Accelerated Cost Recovery System (ACRS) is a depreciation method that assigns assets periods of cost recovery based on specific IRS criteria. Since 1986, the Modified Accelerated Cost Recovery System (MACRS) has been far more prevalent.

How Does the Accelerated Cost Recovery System (ACRS) Work?

Following the Economic Recovery Tax Act of 1981, the IRS implemented ACRS for assets purchased between 1980 and 1986. The ACRS shifted the focus of asset depreciation away from the customary straight-line approach, based on lifespan, to an approach based on the cost to a company of an income-generating asset across fixed periods of 3, 5, 10, and 15 years . In this way, ACRS was intended to increase the amount of periodic depreciation associated with a given asset by dividing the asset's cost into fewer periods, thus accelerating the process of depreciation. Higher periodic depreciation amounts were, consequently, reportable for each period. ACRS should not be confused with the modified accelerated cost recovery system (MACRS), which replaced the ACRS following the Tax Reform Act of 1986 and provided for faster depreciation during only the first few years of an asset's life.

To illustrate, suppose company XYZ purchased an asset at a cost of $5m. Under straight-line depreciation, this asset depreciated completely over the course of 20 years (a reportable rate of $250k per year). If this asset qualified under ACRS for depreciation over 10 years, the rate of depreciation would increase to $500k.

Why Does the Accelerated Cost Recovery System (ACRS) Matter?

A company's reported asset depreciation counts toward tax deductions under the IRS tax code. ACRS was intended to increase companies' reported depreciation amounts and provide them with higher tax deductions. These tax deductions allowed them to keep more of the revenue generated by these assets. This made it possible for companies to quickly repay any associated debts while increasing their bottom line.