Also known as: alternative depreciation systems · ADS
Written by attorneys · grounded in primary & secondary sources — see below
A tax depreciation method that requires use of the straight-line approach over extended recovery periods. Residential rental property receives a thirty-year recovery period and nonresidential real property receives a forty-year recovery period. The method applies when elected by the taxpayer or when required by statute, such as upon electing out of the business interest deduction limitation.
Artemis Logistics acquires a warehouse and elects out of the business interest deduction limitation under the TCJA. The company must therefore compute depreciation on the building using the alternative depreciation system. This results in a forty-year recovery period instead of the thirty-nine years available under the general system.
Avalon Pharmaceuticals places several computers into service that do not meet the more-than-fifty-percent business-use threshold. The firm must calculate its depreciation deductions under the alternative depreciation system. The straight-line method therefore governs the allowable annual deductions.
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A taxpayer must use the alternative depreciation system when it elects out of the business interest deduction limitation. The system is also required for listed property that fails the more-than-fifty-percent business-use test.
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Under ADS, residential rental property has a thirty-year recovery period and nonresidential real property has a forty-year recovery period. These periods are longer than the twenty-seven-and-a-half-year and thirty-nine-year periods available under the general system.
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The alternative depreciation system always employs the straight-line method. This requirement applies both to real property and to listed property that does not satisfy the business-use threshold.
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