In context
Two depreciation regimes under MACRS. GDS is the default; ADS is required in specific circumstances and is incompatible with §168(k) bonus depreciation.
| GDS (General) | ADS (Alternative) | |
|---|---|---|
| Default? | Yes | No |
| Method | Declining-balance switching to straight-line | Straight-line throughout |
| Recovery period (residential rental) | 27.5 years | 30 years |
| Recovery period (nonresidential) | 39 years | 40 years |
| Recovery period (5-yr class) | 5 years | 5 years (same) |
| Recovery period (15-yr land improvements) | 15 years | 20 years |
| Bonus depreciation eligible? | Yes (if ≤20-yr) | No |
ADS is required in five situations under §168(g):
- Tax-exempt-use property
- Listed property used ≤50% for business
- Property used predominantly outside the U.S.
- Property of a farming business that elected out of the §163(j) interest limitation
- Real property of a real-property trade or business that elected out of the §163(j) limitation under §163(j)(7)
The §163(j)(7) election is the most consequential ADS application for real estate investors. A taxpayer that elects out of business-interest limitations on real property gives up §168(k) bonus depreciation on the affected classes — forever, irrevocably. The math should be modeled before making the election.