How to Calculate MACRS Depreciation: Basis, Convention, and Tables

To calculate MACRS depreciation, multiply the asset’s depreciable basis by the percentage the IRS assigns to its recovery period, depreciation method, and applicable convention. Publication 946 contains the percentage tables that do the heavy math for you, so the calculation itself is one multiplication per year. The work is in getting four inputs right: the basis, the placed-in-service date, the recovery period, and the method-and-convention combination.¹

Before running the full calculation, check whether bonus depreciation or Section 179 will let you deduct the whole cost in year one. For most equipment placed in service in 2026, it will, and the MACRS tables never come into play. Those rules are covered further down.

Step 1: Figure Out the Depreciable Basis

For a purchased asset, the depreciable basis equals what you paid plus sales tax, delivery, and installation costs needed to make the property ready for use.¹

Two items get carved out. Land cannot be depreciated, so a $500,000 building on land worth $100,000 gives you a depreciable basis of $400,000, not $500,000. Inventory and stock in trade are also excluded.¹

One quirk if you’re coming from financial accounting: MACRS treats salvage value as zero. You depreciate the entire basis, not basis minus expected residual value.²

If an asset serves both business and personal purposes, multiply the basis by the business-use percentage. A $15,000 computer used 70% for business gives you a depreciable basis of $10,500, and every subsequent MACRS calculation runs off that reduced number.¹

Trade-ins are no longer a shortcut. Like-kind exchanges after 2017 are limited to real property, so trading in an old truck for a new one is now a taxable sale followed by a purchase. Your basis in the new truck is its full cost, not the cash difference.

Step 2: Nail Down the Placed-in-Service Date

The placed-in-service date is the date the property was ready and available for its intended use — not the day you first used it. A machine fully installed and operational on December 15 is placed in service December 15, even if you don’t run a job on it until January. A machine sitting in the warehouse waiting to be wired isn’t placed in service yet.

This date drives everything downstream: which tax year the depreciation starts in, which convention applies, and whether bonus depreciation rules from an earlier or later regime govern.

Step 3: Look Up the Recovery Period

MACRS sorts tangible property into asset classes with fixed recovery periods. Under the General Depreciation System (GDS), which nearly all business property uses, the common classes are:

3-year property: over-the-road tractor units, racehorses over two years old, rent-to-own property.
5-year property: automobiles, taxis, trucks, buses, office machinery such as copiers, research equipment, and appliances or furniture used in residential rentals.¹
7-year property: office furniture and fixtures, railroad track, and any property without a designated class life. This is the catch-all category.¹
15-year property: qualified improvement property, land improvements such as fences and parking lots, and certain gas distribution lines.
27.5-year property: residential rental buildings.
39-year property: nonresidential real property, including office buildings, warehouses, and retail stores.

Qualified improvement property is easy to miss. Interior improvements to a nonresidential building placed in service after the building was first used qualify for 15-year recovery, as long as the work doesn’t enlarge the building, add an elevator or escalator, or alter the internal structural framework.¹ That’s a much faster write-off than the 39 years the renovation would otherwise ride with the building.

A boundary worth naming: the Alternative Depreciation System (ADS) uses longer recovery periods and straight-line only. You must use ADS for property used predominantly outside the U.S., property leased to a tax-exempt entity, and property financed with tax-exempt bonds, or you may elect it voluntarily.³ The rest of this walkthrough assumes GDS.

Step 4: Identify the Method

Under GDS, the method is assigned by class rather than chosen freely.

200% declining balance is the default for 3-, 5-, 7-, and 10-year property. It gives the largest deductions in early years and switches automatically to straight-line once that produces a bigger annual deduction.²
150% declining balance applies to 15- and 20-year property, with the same automatic switch.²
Straight-line is required for residential rental (27.5 years), nonresidential real property (39 years), and qualified improvement property (15 years). You can also elect straight-line for any class, but the election covers all property in that class placed in service the same year and can’t be reversed.

You don’t have to compute when the declining-balance-to-straight-line crossover happens. The Publication 946 tables have it built in.

Step 5: Apply the Right Convention

Conventions decide how much depreciation you get in the year the asset enters service and the year it leaves.

Half-year convention. The default for personal property. Every asset is treated as placed in service at the midpoint of the year, so you claim half a year in year one and half in the final year of the recovery period.²
Mid-quarter convention. If more than 40% of all personal property placed in service during the year entered service in the last three months, everything placed in service that year uses mid-quarter. Each asset is treated as placed in service at the midpoint of the quarter it actually entered use.²
Mid-month convention. Applies to residential rental and nonresidential real property. The asset is treated as placed in service at the midpoint of the month it was first ready for use.

The mid-quarter test surprises people. If you buy a $50,000 truck in March and a $40,000 server in November, the November purchase is more than 40% of the year’s total, so both assets fall under mid-quarter — not just the one placed late.

Step 6: Multiply the Basis by the Table Percentage

Open IRS Publication 946, go to the percentage table matching your method and convention, find the column for your recovery period, and read the row for the current year of the asset’s life. Multiply that percentage by the unadjusted basis. That’s your deduction for the year.¹

A worked example. You buy $10,000 of office equipment in April 2026. It’s 7-year property, 200% declining balance, half-year convention. From Table A-1:

Year 1: $10,000 × 14.29% = $1,429
Year 2: $10,000 × 24.49% = $2,449
Year 3: $10,000 × 17.49% = $1,749
Year 4: $10,000 × 12.49% = $1,249

The pattern continues through year 8, because the half-year convention pushes an extra partial year onto the tail. The percentages across all years total 100%. You always multiply by the original unadjusted basis, not a declining balance. The table already handles the method switch.

For 5-year property with the same method and convention, the year-one percentage is 20%, so a $10,000 asset produces $2,000 in year one and $3,200 in year two at 32%.¹ The higher year-two percentage reflects 200% declining balance catching up after the half-year reduction.

Repeat the multiplication each year until the recovery period ends or the asset is disposed of. If you sell before the recovery period runs out, the convention governs how much depreciation you claim in the disposition year: under the half-year convention, you get half the table percentage that year.

Check Bonus Depreciation and Section 179 First

For property placed in service in 2026, running the full table calculation is often unnecessary. The One, Big, Beautiful Bill restored permanent 100% bonus depreciation for qualified property acquired after January 19, 2025.⁴ Bonus depreciation has no dollar cap and no taxable income limitation, and it can create or deepen a net operating loss. Applied first, it lets most standard equipment be written off in full in year one.

Section 179 is the other accelerator. For tax years beginning in 2026, it lets you deduct up to $2,560,000 of qualifying property costs, phasing out dollar-for-dollar once qualifying property placed in service exceeds $4,090,000. Sport utility vehicles are capped at $32,000.¹ Unlike bonus depreciation, Section 179 cannot create or increase an overall business loss — the deduction is capped at taxable income from all active trades or businesses, with any excess carried forward.

The ordering matters. Section 179 comes off first, then bonus depreciation, then regular MACRS runs on whatever basis is left.³ You still need the MACRS calculation for assets where you elect out of bonus, for real property other than qualified improvement property, and for assets acquired before the January 20, 2025 cutoff that fell under the prior phase-down schedule.

Vehicles: The Luxury Auto Caps Override Everything

Passenger automobiles, including trucks and vans, face annual dollar caps that limit depreciation regardless of the method you’d otherwise use. For vehicles placed in service in 2026, the maximum first-year depreciation including bonus is $20,300. Without bonus, the first-year cap is $12,300.⁵ Later years have their own caps, and any basis left after the recovery period ends can be deducted at up to $5,760 per year.⁶

The caps apply before the reduction for personal use. A car with the $20,300 first-year cap used 80% for business gives you a $16,240 deduction.

Vehicles are also listed property, along with property used for entertainment and certain other categories fixed by regulation. If business use exceeds 50% in the year the property is placed in service, normal MACRS, bonus depreciation, and Section 179 are all available. If business use drops to 50% or below in any later year, you must switch to ADS straight-line going forward and recapture the excess depreciation claimed in prior years as ordinary income that year.⁷ You cannot claim any depreciation on listed property without contemporaneous records supporting business use — a mileage log for vehicles, time-based records otherwise. Commuting does not count as business use.

Fixing a Miscalculation From a Prior Year

If you find you’ve used the wrong recovery period, the wrong method, or missed an asset entirely, the fix is Form 3115, not amended returns. The IRS treats the correction as a change in accounting method.⁸

Form 3115 uses a Section 481(a) adjustment to catch up all prior-year differences in one number. If you under-depreciated, the whole catch-up (a negative adjustment giving you more deductions) hits the current year. If you over-depreciated, the positive adjustment is spread over the year of change and the three following years.⁹ Many depreciation corrections qualify for automatic consent, so you can file without waiting for IRS approval.

1
Internal Revenue Service. Publication 946 (2025), How To Depreciate Property
2
Office of the Law Revision Counsel. 26 U.S. Code 168 – Accelerated Cost Recovery System
3
Internal Revenue Service. Instructions for Form 4562 (2025)
4
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill
5
Internal Revenue Service. Rev. Proc. 2026-15
6
Office of the Law Revision Counsel. 26 U.S. Code 280F – Limitation on Depreciation for Luxury Automobiles
7
Internal Revenue Service. Publication 946 (2025), How To Depreciate Property – Additional Rules for Listed Property
8
Internal Revenue Service. About Form 3115, Application for Change in Accounting Method
9
Internal Revenue Service. Instructions for Form 3115