How to Calculate MACRS Depreciation: Inputs, Conventions, and Tables

To calculate MACRS depreciation, you need four things about the asset: its cost basis, the date it was placed in service, its recovery period from the IRS property class tables, and the depreciation method and convention that go with it. Multiply the unadjusted basis by the percentage the IRS publishes for each year of the recovery period, and report the result on Form 4562. Before you build a multi-year schedule, check whether 100% bonus depreciation or Section 179 expensing lets you write off the whole cost in year one. For a lot of equipment purchases in 2025 and after, they will.

The Four Inputs You Need

Cost Basis

Basis is usually the purchase price plus what you spent to get the asset ready to use. Sales tax, shipping, and installation get added to basis rather than deducted separately. A $10,000 machine with $1,000 of delivery and setup has a depreciable basis of $11,000.¹

Inherited business property generally uses fair market value on the date of the decedent’s death. Gifted business property usually keeps the donor’s adjusted basis.² Get this wrong and every year of depreciation is wrong, so document it at the start.

When you buy real estate, split the price between the building and the land. Land is not depreciable. Your closing statement, the property tax assessment, or an appraisal can support the allocation.³ Inventory and intangibles like patents and goodwill are not depreciated under MACRS either.⁴

Date Placed in Service

This is the date the property is ready and available for its intended use, which is not always the purchase date.⁵ Buy a van in December that first hits the road in January and depreciation starts in January. The date drives which tax year gets the first deduction and which convention applies.

Recovery Period

Every depreciable asset falls into a property class with a set recovery period. Appendix B of Publication 946 has the detailed tables. The common classes:⁴

3-year: tractor units, racehorses over two years old, certain manufacturing tools
5-year: cars, trucks, computers, copiers, office machinery
7-year: office furniture and fixtures such as desks and safes
15-year: land improvements (fencing, roads, sidewalks) and qualified improvement property
20-year: farm buildings and municipal sewers
27.5-year: residential rental buildings
39-year: nonresidential commercial buildings

Most taxpayers use the General Depreciation System (GDS), which gives shorter recovery periods and larger yearly deductions. The Alternative Depreciation System (ADS) uses longer periods and straight-line only. ADS is mandatory for a handful of situations, including property used predominantly outside the United States, property leased to tax-exempt organizations, and property financed with tax-exempt bonds.⁶ Any taxpayer can also elect ADS voluntarily, but the election cannot be revoked.

Method

Under GDS, the method depends on the class:⁴

200% declining balance is the default for nonfarm 3-, 5-, 7-, and 10-year property. Deductions are largest in the early years, and the method automatically switches to straight-line when that produces an equal or larger deduction.
150% declining balance is the default for 15- and 20-year property, with the same automatic switch to straight-line.
Straight-line is required for residential rental (27.5-year) and nonresidential real property (39-year), and produces roughly equal deductions each year except the first and last.

You can elect straight-line for any class by entering “S/L” in column (f) of Part III on Form 4562. That election is irrevocable for that class of property placed in service that year.

Pick the Convention

The convention decides how much of the first and last year counts. There are three:⁶

Half-year is the default for personal property. Everything placed in service during the year is treated as if it went into service at the year’s midpoint. You get half a year in year one and half a year in the final year, no matter what month you actually started using the asset.
Mid-quarter kicks in when more than 40% of the total basis of all personal property placed in service that year lands in the last three months. When it triggers, every asset for that year switches to mid-quarter, not just the late purchases. Real property is excluded from the 40% test.
Mid-month is required for residential rental and nonresidential real property. The building is treated as placed in service at the midpoint of the actual month.

The mid-quarter rule exists to keep businesses from stacking equipment purchases into December and still claiming a full half-year. If you cross the 40% line, the tables you use change for every asset placed in service that year.

Look Up the Percentage and Multiply

Once you have the recovery period, method, and convention, look up the annual percentages in Appendix A of Publication 946. You apply each year’s percentage to the original unadjusted basis, not to a declining balance you calculate yourself. The tables have already baked in the method switches and the convention adjustments.

Five-year property under 200% declining balance with the half-year convention uses these percentages:⁴

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

A 5-year asset actually spans six tax years, because the half-year convention gives you only half a year at both ends. On a $10,000 basis, the year-one deduction is $10,000 × 20% = $2,000. Year two is $10,000 × 32% = $3,200. By the end of year six, the full $10,000 has been written off.

Use the right table for your exact combination of method, class, and convention. Running a half-year table when mid-quarter applies will be wrong in every year of the schedule.

Check Whether You Can Skip the Schedule Entirely

Two provisions often let you deduct all or most of an asset’s cost in year one, which usually beats building out a six-year schedule.

Bonus Depreciation

The One, Big, Beautiful Bill Act, signed into law on July 4, 2025, permanently restored 100% bonus depreciation for qualifying business property placed in service after January 19, 2025.⁷ Eligible new or used equipment, machinery, vehicles, and other personal property with a recovery period of 20 years or less can be deducted in full in the year placed in service, subject to other exclusions such as property acquired from a related party.

You can elect a reduced percentage instead: 40% for most property, or 60% for certain property with longer production periods.⁸ Whatever bonus depreciation doesn’t cover gets recovered through regular MACRS over the remaining recovery period.

Section 179 Expensing

Section 179 lets you expense the cost of qualifying property in the year it goes into service. For tax years beginning in 2026, the maximum deduction is $2,560,000, phasing out dollar-for-dollar once total qualifying property placed in service exceeds $4,090,000.⁹ The deduction for sport utility vehicles is capped at $32,000.

Section 179 cannot create or increase a net operating loss; it is limited to your taxable business income for the year. The property must be used for business more than 50% of the time. Anything over the dollar cap or the income limit falls back into normal MACRS.

Passenger Vehicles Have Hard Caps

Section 280F caps the yearly depreciation on a passenger automobile no matter what the vehicle actually cost, and the caps apply to regular MACRS and bonus depreciation combined.¹⁰ For passenger automobiles placed in service in 2025, the first-year cap is $20,200 with bonus depreciation and $12,200 without. Years two, three, and later are $19,600, $11,800, and $7,060.¹¹ The IRS updates the numbers each calendar year, so check the current revenue procedure for vehicles placed in service in 2026. Heavy SUVs and trucks with a gross vehicle weight over 6,000 pounds are generally exempt from the 280F caps but still hit the $32,000 Section 179 SUV limit.

Vehicles and other listed property also carry a business-use rule. Use the asset more than 50% for business or you cannot claim accelerated depreciation or Section 179. If business use drops to 50% or lower after you placed the property in service, you switch to straight-line ADS going forward and may have to recapture the excess accelerated depreciation from earlier years as ordinary income.

Report It on Form 4562

MACRS depreciation is reported on IRS Form 4562. Assets placed in service in the current year go in Part III: GDS on lines 19a through 19j, ADS on lines 20a through 20e.¹² Depreciation carrying over from prior years is a single total on line 17. Section 179 is claimed in Part I; bonus depreciation goes on line 14.

You only have to file Form 4562 in years when you place new depreciable property in service, claim Section 179, or report depreciation on listed property. Other years, the continuing depreciation goes straight onto Schedule C, Form 1065, or Form 1120. Keep a running schedule for every asset with the original basis, date placed in service, method, convention, and recovery period. If the IRS asks about a deduction three years from now, you’ll need to rebuild the math.

1
Office of the Law Revision Counsel. 26 U.S. Code 167 – Depreciation
2
Internal Revenue Service. Publication 551, Basis of Assets
3
Internal Revenue Service. Topic No. 704, Depreciation
4
Internal Revenue Service. Publication 946, How To Depreciate Property
5
Internal Revenue Service. FS-2006-27, Depreciation Reminders
6
Office of the Law Revision Counsel. 26 U.S. Code 168 – Accelerated Cost Recovery System
7
Internal Revenue Service. One, Big, Beautiful Bill Provisions
8
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill
9
Internal Revenue Service. Revenue Procedure 2025-32
10
Office of the Law Revision Counsel. 26 U.S. Code 280F – Limitation on Depreciation for Luxury Automobiles
11
Internal Revenue Service. Revenue Procedure 2025-16
12
Internal Revenue Service. Instructions for Form 4562 – Depreciation and Amortization