What is the MACRS recovery period for vehicles used in a small business?
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The MACRS (Modified Accelerated Cost Recovery System) recovery period for vehicles used in a small business depends on the type of vehicle and its use. Here are the key details:
1. Passenger Automobiles and Light Trucks
- Passenger automobiles (defined as four-wheeled vehicles made primarily for use on public streets, roads, and highways, with an unloaded gross vehicle weight of 6,000 pounds or less) and light general purpose trucks (actual weight less than 13,000 pounds) are classified as 5-year property under MACRS.
- The recovery period is 5 years for both passenger automobiles and light trucks under the General Depreciation System (GDS).
2. Other Vehicles
- Heavy general purpose trucks (actual unloaded weight 13,000 pounds or more) are also classified as 5-year property under GDS.
- Tractor units for use over-the-road are classified as 3-year property under GDS.
3. Depreciation Methods
- For most vehicles (including passenger automobiles and light trucks), the default MACRS method is the 200% declining balance method, switching to straight line when it yields a greater deduction, over the 5-year recovery period.
- Taxpayers may elect to use the 150% declining balance or straight line method instead.
4. Alternative Depreciation System (ADS)
- If required (for example, if the vehicle is used predominantly outside the U.S., is tax-exempt use property, or if the taxpayer elects ADS), the recovery period for automobiles and light trucks under ADS is also 5 years, but the straight line method must be used.
5. Special Considerations
- Listed property rules apply to vehicles, meaning that if the business use is 50% or less, the straight line method over the ADS recovery period (5 years) must be used, and Section 179 and bonus depreciation are not available.
- Depreciation limits apply to passenger automobiles (including trucks and vans) for each year of the recovery period.
6. Tires and Tubes
- If tires and tubes have a useful life of more than one year, they are treated as separate assets from the vehicle and are depreciated over 5 years under MACRS.
7. Summary Table
Note: "DB" = Declining Balance; "SL" = Straight Line.
In summary: For most vehicles used in a small business, including passenger automobiles and light trucks, the MACRS recovery period is 5 years under both GDS and ADS, with the 200% declining balance method as the default under GDS, unless the straight line or 150% declining balance method is elected or required.
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