FF&E depreciation is how a business writes off the cost of furniture, fixtures, and equipment across the years it uses those assets. Three inputs drive the calculation: what you paid (cost basis), the recovery period the IRS assigns to the asset class, and salvage value, which for tax purposes is always zero. Once you have those, you apply the Modified Accelerated Cost Recovery System (MACRS) and, in most cases today, layer on Section 179 or 100% bonus depreciation to expense the full cost in year one.
What Counts as FF&E
FF&E covers tangible assets a business uses in day-to-day operations that last longer than one year: desks, shelving, phone systems, computers, production machinery, restaurant ovens, retail display cases. These items live on the balance sheet as long-term assets, not as ordinary expenses and not as inventory.
Land, buildings, and structural components of buildings are not FF&E and follow different depreciation rules. Inventory held for resale is excluded too. Classification matters because it drives the MACRS recovery period and method. Under MACRS, computers and certain technology equipment are 5-year property, while office furniture and most general business equipment fall into the 7-year class.1Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System Put an item on the wrong schedule and you will over- or under-deduct every year until the error is caught.
The Three Numbers You Need
Cost Basis
Cost basis is the total amount you invest to get the asset up and running, not just the sticker price. Sales tax, shipping, freight, and installation all get folded in and capitalized. Buy a commercial oven for $8,000, pay $600 for delivery and $400 for installation, and your depreciable basis is $9,000. The IRS requires you to capitalize those associated costs rather than deducting them separately.2Internal Revenue Service. Publication 946 – How To Depreciate Property
Recovery Period
For GAAP books you estimate useful life yourself. For taxes, that estimate is irrelevant. The IRS assigns fixed recovery periods and you must use them. Most FF&E is 5-year or 7-year property. These statutory periods are typically shorter than the asset’s real economic life, which is how MACRS accelerates the tax benefit.
Salvage Value
Salvage value is what you expect the asset to be worth when you are done with it. Under MACRS, salvage value is always treated as zero, so you depreciate the entire cost basis.1Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System On GAAP financial statements you subtract salvage before running straight-line depreciation, which is one reason tax and book depreciation almost never match.
When You Can Skip the Schedule Entirely
Not every purchase has to be spread across a recovery period. Several rules let you expense qualifying FF&E in the year you buy it.
De Minimis Safe Harbor
If your business does not have an applicable financial statement (audited financials), you can expense items costing $2,500 or less per invoice or per item in the year of purchase.3Internal Revenue Service. Tangible Property Final Regulations The election is made annually on your return and applies to each qualifying purchase individually. Ten office chairs at $200 each qualify separately. A single $3,000 desk does not.
Section 179 Expensing
Section 179 lets you deduct the full cost of qualifying FF&E in the year you place it in service instead of spreading it out. For the 2026 tax year, the maximum Section 179 deduction is $2,560,000, adjusted for inflation from a $2,500,000 base.4Office of the Law Revision Counsel. 26 USC 179 – Election To Expense Certain Depreciable Business Assets The deduction phases out dollar-for-dollar once total Section 179 property placed in service during the year exceeds $4,090,000 and disappears entirely at $6,650,000.
Two constraints matter. The election is voluntary, so you choose how much to expense up to the limit. And Section 179 cannot create or increase a net operating loss: your deduction is capped at taxable income from all active trades or businesses for the year. Any amount disallowed by the income cap carries forward indefinitely.5eCFR. 26 CFR 1.179-3 – Carryover of Disallowed Deduction
Bonus Depreciation
For property acquired after January 19, 2025, the One, Big, Beautiful Bill Act made 100% bonus depreciation permanent.6Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill There is no dollar cap and no taxable income limit. Unlike Section 179, bonus depreciation is automatic; it applies unless you affirmatively elect out. You can also elect 40% instead of 100% for any class of property placed in service during the year.7Internal Revenue Service. Interim Guidance on Additional First Year Depreciation Deduction Businesses with low current-year income sometimes prefer the partial election to preserve deductions for higher-bracket years or avoid a net operating loss that could expire unused.
The two provisions stack. Apply Section 179 first up to the dollar and income limits, then take 100% bonus depreciation on the remaining basis. In practice, this means most businesses can write off the full cost of FF&E purchases in year one regardless of amount. The strategic difference is control: Section 179 is elective and income-limited; bonus depreciation is automatic and can create or enlarge a net operating loss.
Standard MACRS When You Are Not Expensing Everything
Where an asset is not fully written off in year one, or where you want a book depreciation figure separate from tax, MACRS runs on a 200% declining balance method that automatically switches to straight-line when straight-line yields the larger deduction. You do not do that math yourself. The IRS publishes percentage tables in Publication 946 (Table A-1) that build in the switch.2Internal Revenue Service. Publication 946 – How To Depreciate Property
For 5-year property under the half-year convention, the percentages are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. For 7-year property, they are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.92%, 8.93%, and 4.46%. Each percentage is applied directly to the full cost basis, because salvage is treated as zero.
Five-year property actually takes six calendar years to fully depreciate, and 7-year property takes eight. The extra year comes from the half-year convention, which assumes you placed the asset in service at the midpoint of year one and gives you a partial deduction in both the first and last years.8eCFR. 26 CFR 1.168(d)-1 – Half-Year and Mid-Quarter Conventions
One override to watch. If more than 40% of your total depreciable property for the year is placed in service in the last three months, the mid-quarter convention applies instead. Each asset is then treated as placed in service at the midpoint of the quarter you actually bought it, and separate IRS tables govern the calculation. Heavy fourth-quarter buying is what usually trips this rule.
When ADS Is Required Instead
Standard MACRS is technically the General Depreciation System (GDS). The Alternative Depreciation System (ADS) uses straight-line depreciation over longer recovery periods, which slows deductions considerably. ADS is mandatory for:
- Property used predominantly outside the United States (more than 50% foreign use).
- Tax-exempt use property, such as assets leased to governments or nonprofits.
- Property financed with tax-exempt bond proceeds.
- Certain imported property covered by an executive order restricting imports, where less than 50% of the basis is attributable to U.S.-added value.
You can also elect ADS voluntarily for any class of property, which some businesses do when they expect higher tax brackets in later years and want to preserve deductions for then.
Listed Property: Watch the Business-Use Percentage
Certain assets that lend themselves to personal use get extra scrutiny under the listed property rules. Vehicles are the most common example. If a listed asset is not used more than 50% for business, you lose accelerated depreciation entirely and must use ADS.9Office of the Law Revision Counsel. 26 USC 280F – Limitation on Depreciation for Luxury Automobiles and Certain Other Property
If business use later drops below 50% after you have claimed accelerated deductions, you must recapture the excess: the difference between what you actually deducted and what ADS would have allowed is added back to income. Keep dated usage logs showing business purpose and percentage of business use to defend the deduction on audit.
What Happens When You Sell
Depreciation gives you tax savings on the way in, but the IRS takes some of it back on the way out. When you sell FF&E for more than its depreciated book value, the gain attributable to prior depreciation is taxed as ordinary income under Section 1245, not at capital gains rates.10Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property
An example. You buy equipment for $50,000 and claim $50,000 in total depreciation, so book value is zero. If you sell for $15,000, the entire $15,000 gain is ordinary income because it falls within depreciation previously deducted. If the sale price somehow exceeded the original $50,000, only the amount up to total depreciation claimed would be ordinary income; any excess would be capital gain.
Report the sale and recapture on Form 4797, Part III.11Internal Revenue Service. Instructions for Form 4797 This catches businesses off guard more often than any other depreciation issue, especially when Section 179 or bonus depreciation wrote off the full cost in year one and the asset is sold a few years later for a real number. The original savings still made sense in time-value terms, but recapture belongs in the math when you plan a disposal.
Reporting and Records
All MACRS depreciation, Section 179 deductions, and bonus depreciation are reported on Form 4562, filed with your return for any year you place new depreciable property in service.12Internal Revenue Service. Instructions for Form 4562 – Depreciation and Amortization
Behind the form you need an asset register tracking every depreciable item individually. For each asset, record:
- Date placed in service, which sets the convention and the year deductions begin.
- Full cost basis, including capitalized shipping, tax, and installation.
- MACRS recovery period and method (5-year or 7-year GDS, or ADS if applicable).
- Annual and cumulative depreciation, both book and tax, since the two almost always differ.
- Any Section 179 or bonus depreciation elected in year one.
When you sell, retire, or scrap an asset, remove both the cost basis and accumulated depreciation from the books, then compare proceeds to remaining book value to determine gain or loss. A gain triggers Section 1245 recapture. A loss is deductible. A current register turns that disposal calculation into minutes of work instead of hours of forensic accounting.