When depreciating real property under MACRS, the recovery rates are based on the ______ method.

• A. double declining balance
• B. sum-of-the-years'-digits
• C. straight-line
• D. units of production

Answer: (C)

Verified step by step guidance

1. Understand the context: The Modified Accelerated Cost Recovery System (MACRS) is a method of depreciation used in the United States for tax purposes. It allows for accelerated depreciation of assets, but for real property, a specific method is used.
2. Identify the key term: Real property under MACRS refers to assets like buildings or land improvements, which are depreciated over a longer recovery period compared to personal property.
3. Recall the depreciation methods: The options provided include double declining balance, sum-of-the-years'-digits, straight-line, and units of production. Each method calculates depreciation differently.
4. Focus on the correct method: Under MACRS, real property (such as residential and non-residential buildings) is depreciated using the straight-line method over a specified recovery period (e.g., 27.5 years for residential property and 39 years for non-residential property).
5. Conclude: The straight-line method is used for real property under MACRS because it allocates an equal amount of depreciation expense each year over the asset's useful life, as required by tax regulations for this type of property.