Accelerated Cost Recovery System - ACRS

An accounting method for quickly lowering or depreciating the held book value of a given asset. The system allowed companies to depreciate the value of cars and equipment and factories faster, saving money on taxes. ACRS was the grand scheme of the government in the 1980s recession to help save businesses money on taxes, and boost cash flow. The ACRS was replaced with the Modified Accelerated Cost Recovery System (MACRS) in 1986.

Example: Let’s say we have a blender company and it’s making $300 million in pre-tax profits. We spend $1 billion on a fancy new plant. We can accelerate the deprecation on the plant during the year to the tune of $200 million. Now, instead of paying $90 million in tax (30% rate on our $300 million pre-tax profits), we’ll only pay $30 million, thanks to the $200 million depreciation expense that reduced our taxable profits to $100 million (30% tax on $100 million versus $300 million saves us $60 million in taxes). Essentially, it accelerates the cost recovery of our pant.