How Long to Depreciate Computer Equipment: MACRS, Section 179, Bonus

Computer equipment used in a business is five-year property under the IRS Modified Accelerated Cost Recovery System, so the default answer to how long to depreciate computer equipment is roughly six tax years, because the half-year convention stretches a five-year class across six calendar years.¹ Most businesses never ride out that schedule, though. Section 179 expensing, 100% bonus depreciation, and the de minimis safe harbor each let you deduct the full cost in the year the equipment goes into service, and all three are available for hardware placed in service in 2026.

Which route makes sense depends on how much you spent, how much your business earned, and whether you plan to keep the equipment or resell it.

The Default Five-Year MACRS Schedule

Laptops, desktops, servers, monitors, printers, scanners, keyboards, external drives, routers, and switches all sit in the same “computer and peripheral equipment” class. If you take no accelerated election, they depreciate under the General Depreciation System using the 200% declining balance method with a half-year convention. The class is labeled five-year, but the deductions run across six tax years because the half-year rule treats the equipment as placed in service at the midpoint of Year 1 regardless of the actual purchase date.¹

The year-by-year percentages for five-year property under the half-year convention are:¹

Year 1: 20%
Year 2: 32%
Year 3: 19.2%
Year 4: 11.52%
Year 5: 11.52%
Year 6: 5.76%

A $10,000 server placed in service in 2026 produces a $2,000 deduction that year, $3,200 in 2027, and progressively smaller amounts through 2031. The front-loading is deliberate. The declining balance method recognizes that a computer loses most of its economic value in its early years.

When Q4 Purchases Trigger the Mid-Quarter Convention

If more than 40% of all depreciable personal property you place in service during the year lands in the final quarter, you have to use the mid-quarter convention instead. Q4 assets then get only 1.5 months of first-year depreciation rather than six, which sharply cuts the Year 1 deduction on late-year purchases.¹

The Alternative Depreciation System

A few situations force you into the Alternative Depreciation System instead: equipment used predominantly outside the United States, property financed with tax-exempt bonds, and property held by certain electing real property businesses. ADS still uses a five-year recovery period for computer equipment, but the method is straight-line, so the deductions are equal each year rather than front-loaded.¹ You can elect ADS voluntarily, but there is rarely a reason to for computer hardware.

Section 179: Full Write-Off in Year 1

Section 179 lets you deduct the entire cost of qualifying equipment in the year it goes into use. For tax year 2026, the maximum Section 179 deduction is $2,560,000, and the benefit phases out dollar-for-dollar once total equipment purchases exceed $4,090,000. Both thresholds are indexed for inflation.

Two limitations catch people:

Taxable income cap. Your Section 179 deduction cannot exceed the total taxable income from all your active businesses combined. If your business earns $80,000 and you buy $120,000 in equipment, only $80,000 comes off under Section 179 this year. The remaining $40,000 carries forward.²
Business use threshold. You can only elect Section 179 if business use exceeds 50% in the year you place the computer in service, and the deductible amount is scaled to the business-use percentage.¹

100% Bonus Depreciation Under the One, Big, Beautiful Bill

The One, Big, Beautiful Bill Act permanently restored 100% additional first-year depreciation for qualified property acquired after January 19, 2025.³ Bonus depreciation had been phasing down (60% in 2024) and was set to disappear entirely.⁴ For computer equipment placed in service in 2026, 100% bonus depreciation means the entire cost comes off in Year 1, with no dollar cap and no taxable-income limit.

That last point is the key structural difference from Section 179. Bonus depreciation can create or deepen a net operating loss; Section 179 cannot exceed your business income.

Choosing Between Section 179 and Bonus Depreciation

Both provisions can zero out the cost of a computer in Year 1, but they behave differently. Section 179 is a per-asset election with a dollar ceiling and an income cap. Bonus depreciation applies automatically to all eligible property unless you opt out, has no dollar limit, and can generate a loss. Many small businesses use Section 179 first for the control it offers, then let bonus depreciation absorb any remaining cost. A business having a lean year might skip Section 179 and rely on bonus depreciation to create a loss that carries forward.

De Minimis Safe Harbor for Cheap Peripherals

You don’t need to put a $200 keyboard or a $1,500 monitor on any depreciation schedule at all. The de minimis safe harbor election lets you deduct items costing $2,500 or less per invoice or per item as ordinary business expenses in the year of purchase.⁵ Businesses with audited financial statements prepared by an independent CPA get a $5,000 threshold instead.⁶

To use the safe harbor, attach a statement titled “Section 1.263(a)-1(f) de minimis safe harbor election” to your timely filed return with your name, address, taxpayer identification number, and confirmation of the election.⁵ It’s a per-year election, so make it every year you want it.

When a Computer Isn’t 100% Business

Split-use computers get their depreciable basis scaled down by the business-use percentage. A $3,000 laptop used 70% for business has a $2,100 depreciable basis, and Section 179 is available only if business use exceeds 50% in the year the equipment goes into service.¹

Computers used to be “listed property,” which imposed strict contemporaneous logs and harsh recapture if business use dropped below 50% later. The Tax Cuts and Jobs Act removed computers and peripherals from that category starting in 2018.⁷ You still need records that can support your claimed business-use percentage, but the heightened listed-property standard no longer applies.⁸

Software Follows Different Rules

Software doesn’t share the hardware schedule. Off-the-shelf programs sold under a nonexclusive license are depreciated straight-line over 36 months, though Section 179 and bonus depreciation can also apply.¹ Custom or acquired software may be a Section 197 intangible amortized over 15 years, depending on how it was obtained. Cloud subscriptions and SaaS are not capital purchases at all; IRS final regulations effective for tax years beginning on or after January 14, 2025, classify cloud transactions as services, so you deduct the fees as ordinary business expenses when paid.

What Happens When You Sell or Scrap the Equipment

Selling depreciated computer equipment triggers Section 1245 recapture. Any gain is treated as ordinary income to the extent of all depreciation you previously claimed, including Section 179 and bonus depreciation.⁹ If you bought a server for $10,000, wrote off the full cost with bonus depreciation, and later sold it for $2,000, your adjusted basis is zero and the entire $2,000 is ordinary income. Report the sale on Form 4797, Part III for equipment held more than one year, or Part II if held for a year or less.¹⁰

If equipment becomes worthless or you scrap it before the recovery period ends, you can claim an abandonment loss equal to the remaining adjusted basis. Property fully expensed under Section 179 or bonus depreciation has a basis of zero, so there’s nothing left to deduct. Equipment still running out its MACRS schedule will have some basis left, and that amount becomes a deductible loss when you retire the asset from use.

Recapture is the hidden cost of aggressive first-year deductions. Taking 100% bonus depreciation saves tax now but creates a larger ordinary-income hit if you resell before the equipment would otherwise have been fully depreciated. For gear you’ll keep until it dies, that rarely matters. For gear you plan to flip in a couple of years, it’s worth running both approaches before you file.

1
Internal Revenue Service. Publication 946 (2025), How To Depreciate Property
2
eCFR. 26 CFR 1.179-2 – Limitations on Amount Subject to Section 179 Election
3
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill
4
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
5
Internal Revenue Service. Tangible Property Regulations – Frequently Asked Questions
6
Internal Revenue Service. Notice 2015-82 – Increase in De Minimis Safe Harbor Limit for Taxpayers Without an Applicable Financial Statement
7
Internal Revenue Service. Tax Cuts and Jobs Act – A Comparison for Businesses
8
Office of the Law Revision Counsel. 26 USC 280F – Limitation on Depreciation for Luxury Automobiles
9
Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property
10
Internal Revenue Service. 2025 Instructions for Form 4797 – Sales of Business Property