What is the primary depreciation method used for assets placed in service after 1986?

The primary depreciation method used for assets placed in service after 1986 is the Modified Accelerated Cost Recovery System, commonly known as MACRS. This method is significant because it changed the landscape of depreciation practices by allowing more accelerated depreciation compared to previous methods. Under MACRS, assets are categorized into different classes, each with specified recovery periods, which allows businesses to recover their investment more quickly through larger depreciation deductions in the earlier years of the asset’s life.

MACRS simplifies the depreciation process by providing predetermined lifespans for various asset categories, which streamlines compliance and helps taxpayers avoid complex calculations associated with other methods. The system is designed to reflect the true economic life of the assets while still providing tax benefits to businesses. By using MACRS, businesses can improve their cash flow by maximizing deductions in the initial years they own an asset.

That’s why MACRS is the correct answer in identifying the primary depreciation method for assets placed into service after 1986, as it represents a pivot in how depreciation is calculated within the U.S. tax system.