Final answer:
MACRS assigns different recovery methods to properties based on the class life. The 3-year property uses the 200 percent declining balance, 20-year property the 150 percent declining balance, and 27.5-year property uses the straight-line method for depreciation.
Step-by-step explanation:
The Modified Accelerated Cost Recovery System (MACRS) is the current tax depreciation system in the United States. MACRS assigns a specific recovery period to different types of property, which dictates the method and period over which you can depreciate an asset for tax purposes. Here are the appropriate MACRS recovery methods matched with the given recovery periods:
- a. For 3-year property, the appropriate MACRS recovery method is 200 percent declining balance. This method accelerates depreciation, allowing for the most significant deductions in the first few years.
- b. For 20-year property, the appropriate MACRS recovery method is 150 percent declining balance. This method also allows for accelerated depreciation but at a slower rate than the 200 percent method.
- c. For 27.5-year property, which is commonly residential rental property, the appropriate MACRS recovery method is the straight-line method. Under this method, the cost is evenly spread out over the recovery period.
To summarize, each MACRS recovery period has an associated method: 3-year property is matched with 200 percent declining balance, 20-year property with 150 percent declining balance, and 27.5-year property with the straight-line method. These methods impact the speed at which a property's cost is depreciated for tax purposes.