Articles · Basics · Business Deductions and Depreciation
MACRS Depreciation Basics
Depreciation spreads the cost of a business asset over time. For most U.S. property, the Modified Accelerated Cost Recovery System (MACRS) sets how fast.
Recovery periods
Each asset falls into a class. Computers and vehicles are generally 5-year property, and office furniture is generally 7-year property. Residential rental buildings use 27.5 years and nonresidential real property uses 39 years. Land is not depreciable.
Methods and conventions
Personal property normally uses an accelerated method, while real property uses straight-line. A convention sets how much depreciation is taken in the year placed in service. The half-year convention is standard for personal property, and the mid-month convention applies to real property.
The mid-quarter convention replaces half-year if more than 40% of personal property is placed in service in the final quarter.
Reporting and sales
Form 4562 reports depreciation for new assets and certain other items. Keep a fixed asset schedule that shows cost, date, class, and accumulated depreciation.
When an asset is sold, earlier depreciation can be recaptured as ordinary income under Section 1245, and related rules apply to real property.
Key takeaways
- Asset class decides the recovery period.
- Watch for the mid-quarter convention.
- Depreciation reduces basis and can be recaptured.
For general education only, not tax advice. Tax law changes often, so confirm current rules and amounts with primary sources.