How Long to Depreciate Equipment: IRS Recovery Periods by Type

Most business equipment depreciates over three, five, or seven years under IRS rules, though recovery periods run from three years to twenty depending on what the asset is. Rather than deducting the full cost the year you buy something, the Modified Accelerated Cost Recovery System (MACRS) generally requires you to spread the cost across the asset’s assigned recovery period. Two exceptions, Section 179 expensing and bonus depreciation, can compress the timeline down to a single tax year for qualifying purchases.

What Counts as Depreciable Equipment

Before the recovery period matters, the property has to meet four basic tests. You must own it, use it in your business or to produce income, be able to determine a useful life for it, and expect it to last more than one year.¹ A laptop you plan to use for three years qualifies. Office supplies you burn through in a month do not.

Land never depreciates because it doesn’t wear out or become obsolete. Inventory held for sale falls outside the depreciation system because its cost gets recovered when you sell it. Almost everything else your business buys and keeps for productive use is depreciable under MACRS.²

Recovery Periods by Type of Equipment

Three-Year Property

The shortest MACRS period applies to assets that wear out fast. Three-year property includes over-the-road tractor units and certain specialized manufacturing tools.² Few businesses hit this category unless they operate in trucking or specific industrial sectors.

Five-Year Property

This is where most office equipment lands. Computers, printers, and peripherals belong here, along with copiers, calculators, and other office machinery. Automobiles, taxis, buses, and light general-purpose trucks also fall into the five-year window.¹

Off-the-shelf computer software gets its own treatment. Purchased software that’s widely available to the public and hasn’t been substantially modified depreciates using the straight-line method over 36 months rather than the standard five-year computer class.¹ That software can also qualify for Section 179 or bonus depreciation, which eliminates the spread entirely.

Seven-Year Property

Seven years catches the broadest set of business assets. Office furniture and fixtures like desks, filing cabinets, and safes belong here, along with agricultural machinery and equipment placed in service after 2017. The real significance of this class is the default rule: any depreciable asset that hasn’t been assigned to a specific class automatically gets a seven-year period.¹ If you buy a specialized piece of equipment and can’t figure out where it belongs, seven years is almost certainly the answer.

Ten-Year Property

Ten-year property covers a narrower set: vessels, barges, tugs, and similar water transportation equipment, plus fruit-bearing and nut-bearing trees and vines. The trees and vines must use straight-line depreciation rather than the accelerated approach available for other ten-year property.¹

Fifteen-Year Property

Fifteen years applies primarily to land improvements rather than traditional equipment. Fences, sidewalks, roads, bridges, and landscaping like shrubbery all depreciate over this window. Municipal wastewater treatment plants also fall in.¹ Remember that the land itself never depreciates; only what you add to it qualifies.

One fifteen-year category trips up owners of commercial buildings: qualified improvement property, or QIP. This covers improvements to the interior of a nonresidential building made after the building was first placed in service. Interior work like new flooring, lighting, or drywall generally qualifies. Building enlargements, elevators and escalators, and internal structural framework do not.

QIP placed in service after 2017 has a fifteen-year GDS recovery period and qualifies for bonus depreciation.¹ A drafting error in the Tax Cuts and Jobs Act had accidentally assigned QIP a 39-year life until Congress fixed it in 2020, making it ineligible for bonus depreciation in the interim. If you placed QIP in service during 2018 or 2019 and used the wrong recovery period, that’s correctable through the accounting method change process.

Twenty-Year Property

Twenty years is reserved for farm buildings other than single-purpose agricultural structures, along with municipal sewers not classified as 25-year property.¹ Beyond twenty years, you leave equipment territory and enter real property: 27.5 years for residential rental buildings and 39 years for commercial buildings.³

How Much You Deduct Each Year

The recovery period sets the window. The depreciation method sets how much you claim in each year of that window. MACRS pairs each class with a default method.³ Three, five, seven, and ten-year nonfarm property uses 200% declining balance, switching to straight-line when straight-line produces a larger deduction. Fifteen and twenty-year property uses 150% declining balance with the same switch. Real property and QIP use straight-line only.

You can elect a slower method. For any property that would otherwise use 200% declining balance, you can choose 150% declining balance or straight-line instead.³ The election applies to all property in the same class placed in service that year and is irrevocable. Under all MACRS methods, salvage value is treated as zero, so you depreciate the full cost basis.

When the Clock Starts

Depreciation doesn’t begin when you buy the equipment or when it arrives. It begins when the asset is “placed in service,” meaning it’s in a condition of readiness and available for its assigned function. A machine sitting in a crate on your loading dock isn’t placed in service. The same machine uncrated, installed, and ready to operate is, even if you haven’t turned it on yet.

Once the asset is placed in service, a convention decides how much of the first and last year you get. The half-year convention is the default for most equipment: you treat the asset as placed in service at the midpoint of the year regardless of the actual date, claim half a year up front, and pick up the other half in the year after the recovery period ends.

The mid-quarter convention overrides the half-year rule if more than 40% of the total depreciable property you place in service during the year enters use in the last three months. Each asset is then treated as placed in service at the midpoint of its actual quarter.⁴ Real property is excluded from the 40% test. The rule keeps businesses from buying heavily in December and claiming a full half-year on equipment that was in service for a few weeks. If you load up on fourth-quarter purchases, you may inadvertently reduce first-year depreciation on everything you bought earlier in the year.

Skipping the Multi-Year Spread

Section 179 Expensing

Section 179 lets you deduct the full purchase price of qualifying equipment in the year you place it in service.⁵ The One Big Beautiful Bill Act, signed in 2025, significantly expanded these limits.

For 2026, the maximum Section 179 deduction is $2,560,000, inflation-adjusted from a statutory base of $2,500,000.⁵ The limit phases out dollar-for-dollar once total qualifying property placed in service that year exceeds $4,090,000, and disappears entirely around $6,650,000 in purchases.

Two other constraints catch businesses off guard. The Section 179 deduction can’t exceed your taxable income from active business operations for the year; if your business generates $200,000 in profit and you buy $500,000 of equipment, you can expense only $200,000, though the unused portion carries forward. And the limit applies per taxpayer, not per asset, so it covers everything you expense that year combined.

Bonus Depreciation

Bonus depreciation works alongside Section 179 with fewer restrictions on deduction size. The One Big Beautiful Bill Act permanently restored 100% bonus depreciation for qualified property acquired after January 19, 2025, reversing the phase-down that had been reducing the percentage each year since 2023.⁶

Eligible property generally includes any MACRS asset with a recovery period of 20 years or less, plus off-the-shelf computer software and QIP. Unlike Section 179, bonus depreciation has no dollar cap and can create or increase a net operating loss. Both new and used equipment qualify as long as the property is new to you and wasn’t acquired from a related party.

For property placed in service during the first tax year ending after January 19, 2025, you can elect a reduced bonus percentage of 40% (or 60% for certain long-production-period property and aircraft) instead of the full 100%.⁶ That election can make sense if you expect a higher bracket in future years and want to preserve deductions. Both Section 179 and bonus depreciation are reported on Form 4562, attached to your return for the year the property is placed in service.

Selling Depreciated Equipment

Depreciation doesn’t just disappear when you sell. Under Section 1245, gain on the sale of depreciable personal property such as machinery, vehicles, and computers is taxed as ordinary income to the extent of all depreciation previously deducted, regardless of holding period.⁷

Say you buy equipment for $50,000 and claim $30,000 of depreciation, leaving an adjusted basis of $20,000. Sell for $35,000 and your $15,000 gain is entirely ordinary income because it sits within the $30,000 of prior depreciation. Sell for $55,000 and $30,000 comes back as ordinary income while the $5,000 above original cost is taxed at capital gains rates.

If you used Section 179 or 100% bonus depreciation to expense equipment in year one, your adjusted basis is zero. Every dollar you receive on sale returns as ordinary income. The trade-off is usually still worth it because of the time value of money, but it’s not the free lunch it sometimes looks like on the front end.

Fixing a Wrong Recovery Period

If you discover you used the wrong recovery period on a prior return, an amended return isn’t the right vehicle. The IRS treats a change in depreciation method or recovery period as a change in accounting method, filed on Form 3115.⁸ The correction for prior years runs through a Section 481(a) adjustment, which either catches you up on missed deductions or claws back excess deductions in a single calculation.

Correcting an impermissible method to a permissible one generally falls under the automatic change procedures. You file Form 3115 with your return for the year of change and send a copy to the IRS National Office, with no user fee for automatic changes.⁸ If you’ve been depreciating seven-year property over five years, the 481(a) adjustment adds the excess back into income. If you used ten years for five-year property, the adjustment gives you the missed deductions.

Leaving the error alone carries risk. The IRS can impose an accuracy-related penalty of 20% on any underpayment caused by negligence or disregard of rules, plus interest from the original due date.⁹ Filing Form 3115 is substantially better than hoping the mistake goes unnoticed.

One boundary worth naming: federal depreciation rules don’t automatically govern your state return. Many states decouple from federal bonus depreciation, so equipment you fully expensed federally may still need to be depreciated over its full recovery period at the state level. Check your state’s conformity rules before assuming the two match.

1
Internal Revenue Service. Publication 946 (2025), How To Depreciate Property
2
Internal Revenue Service. Topic No. 704, Depreciation
3
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
4
eCFR. Applicable Conventions – Half-Year and Mid-Quarter Conventions
5
Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
6
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill
7
Office of the Law Revision Counsel. 26 US Code 1245 – Gain From Dispositions of Certain Depreciable Property
8
Internal Revenue Service. Instructions for Form 3115
9
Internal Revenue Service. Accuracy-Related Penalty