How Much Does Equipment Depreciate Each Year: Class Rates & Section 179

Under the standard federal tax method, business equipment depreciates on a front-loaded schedule set by IRS tables: a 5-year asset like a computer loses 20% of its cost in year one, 32% in year two, then 19.20%, 11.52%, 11.52%, and 5.76%. So the question of how much equipment depreciates each year has a fixed answer once you know the property class, and you can often skip the schedule entirely by deducting the full cost in the first year through Section 179 or bonus depreciation.

The Annual Percentages by Property Class

The Modified Accelerated Cost Recovery System (MACRS) is the default method for nearly all business equipment placed in service today.¹ You don’t compute the declining balance yourself. The IRS publishes fixed percentages in Publication 946, and you multiply your equipment’s cost basis by the percentage for each year.

5-Year Property (computers, copiers, office machinery, most technology equipment):

Year 1: 20.00%
Year 2: 32.00%
Year 3: 19.20%
Year 4: 11.52%
Year 5: 11.52%
Year 6: 5.76%

7-Year Property (office furniture, most general-purpose industrial equipment, used farm machinery placed in service after 2017):

Year 1: 14.29%
Year 2: 24.49%
Year 3: 17.49%
Year 4: 12.49%
Year 5: 8.93%
Year 6: 8.92%
Year 7: 8.93%
Year 8: 4.46%

Two things stand out. First, a 5-year asset takes six calendar years to fully depreciate and a 7-year asset takes eight. Second, the deductions are lopsided toward the front: a $50,000 computer system produces a $16,000 deduction in year two but only $2,880 in its last year.¹

Under MACRS the tables already recover 100% of the cost, so salvage value is not part of the math. If you elect a straight-line calculation outside MACRS for book purposes, salvage value gets subtracted before you divide by useful life.¹ For tax returns, most businesses stay with the accelerated tables because they produce larger deductions sooner.

Why the First Year Is Only Half

The 20% first-year rate for 5-year property is half of the full 40% declining balance rate, and that’s not an accident. MACRS applies a half-year convention: every asset placed in service during the year is treated as if you started using it at the midpoint, regardless of the actual month. That’s also why you get a partial deduction in the year after the recovery period technically ends. The same rule applies when you sell. In the year of disposal you take half a year of depreciation no matter when you stopped using the equipment.

One trap catches businesses that buy heavily at year-end. If more than 40% of your total equipment purchases for the year are placed in service during the last three months, the IRS forces you onto a mid-quarter convention. Each asset’s first-year depreciation is then based on which quarter you placed it in service, which can significantly reduce the deduction for fourth-quarter buys.¹

Which Property Class Applies

The IRS assigns every depreciable asset to a class that determines its recovery period. This period doesn’t have to match how long you actually plan to use the equipment; a truck might run 15 years, but the tables let you write it off in five. The common classes:¹

3-year property: tractor units designed for highway use, certain specialized short-lived assets like rent-to-own property.
5-year property: computers, copiers, calculators, other qualifying technology equipment.
7-year property: office furniture, most general-purpose industrial equipment, used agricultural machinery placed in service after 2017.
15-year property: land improvements such as fences, roads, sidewalks, and bridges, plus qualified improvement property placed in service after 2017.

These classes belong to the General Depreciation System, which is what most businesses use. An Alternative Depreciation System with longer recovery periods applies in specific situations, such as property used predominantly outside the United States or property financed with tax-exempt bonds.²

Skipping the Schedule: Full Deduction in Year One

You don’t have to spread the deduction across five or seven years. Two provisions let you write off part or all of the cost immediately.

Section 179

Section 179 lets you deduct up to $2,560,000 of qualifying equipment costs in the year the property is placed in service for the 2026 tax year. The deduction phases out dollar-for-dollar once total qualifying purchases for the year exceed $4,090,000, and it disappears entirely at $6,650,000. For SUVs with a gross vehicle weight above 6,000 pounds, the Section 179 deduction is capped at $32,000.³

Two limits govern the deduction. The equipment must be used more than 50% for business.⁴ And the Section 179 deduction can’t exceed your taxable business income for the year, though any excess carries forward.

Bonus Depreciation

The One, Big, Beautiful Bill Act, signed into law on July 4, 2025, permanently restored 100% bonus depreciation for qualifying property acquired after January 19, 2025.⁵ You can deduct the full cost of eligible new or used equipment in the first year with no dollar cap and no taxable income restriction. It can even create or increase a net operating loss.

Bonus depreciation had been phasing down under prior law, from 100% to 80% in 2023, 60% in 2024, and 40% in 2025. The new law reversed that. For the first tax year ending after January 19, 2025, businesses can elect 40% instead of 100% if spreading the deduction works out better.⁶

De Minimis Safe Harbor

For low-cost items you may not need to depreciate at all. Under the de minimis safe harbor election, businesses can expense items costing $2,500 or less per invoice (or $5,000 with audited financial statements) as a current-year expense rather than capitalizing them. You make the election on your tax return each year.

Special Caps for Passenger Vehicles

Passenger vehicles get their own annual ceilings that override whatever the tables or Section 179 would otherwise allow. For vehicles placed in service during 2026:⁷

With bonus depreciation:

Year 1: $20,300
Year 2: $19,800
Year 3: $11,900
Each year after: $7,160

Without bonus depreciation:

Year 1: $12,300
Year 2: $19,800
Year 3: $11,900
Each year after: $7,160

A $60,000 car takes many years to fully depreciate even though it’s technically 5-year property. Trucks and vans with a gross vehicle weight above 6,000 pounds are generally exempt from these passenger vehicle caps.

The Three Inputs to Any Calculation

Whichever method you use, three pieces of information determine the deduction.

Cost basis is more than the sticker price. It includes sales tax, shipping, installation, and any other cost required to get the equipment ready for use.¹ A $45,000 machine with $2,000 in freight and $3,000 in installation has a $50,000 basis.

Placed-in-service date is when the equipment is ready and available for its intended use, not when you paid for it or when it was delivered.¹ A CNC machine delivered in November but not operational until January because of calibration isn’t placed in service until January.

Business use percentage limits what you can depreciate. A laptop used 70% for business and 30% personally has only 70% of its cost eligible. For listed property, if business use falls to 50% or less, you lose access to accelerated MACRS rates and Section 179, and you may have to pay back some depreciation you already claimed.⁴

What Happens When You Sell

Depreciation doesn’t quietly disappear when you dispose of the equipment. If you sell for more than the depreciated book value, the IRS recaptures some of that deduction as ordinary income.

Suppose you bought a $50,000 machine, claimed $30,000 in depreciation, and sold it for $35,000. Your adjusted basis is $20,000. The $15,000 gain is taxed as ordinary income up to the total depreciation you claimed, because it represents prior deductions being recaptured.⁸ Any gain above total depreciation is a capital gain.

This matters most if you used Section 179 or bonus depreciation. Deducting the full $50,000 in year one drives the adjusted basis to zero, so the entire sale price becomes taxable gain. If you plan to resell equipment within a few years, factor that hit into the projected value of the up-front deduction. You report the sale and calculate recapture on Form 4797.⁹

1
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
2
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
3
Internal Revenue Service. Rev. Proc. 2025-32
4
Internal Revenue Service. Instructions for Form 4562
5
Internal Revenue Service. One, Big, Beautiful Bill Provisions
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
Internal Revenue Service. Rev. Proc. 2026-15
8
Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property
9
Internal Revenue Service. Instructions for Form 4797