How to Calculate MACRS Depreciation: Tables, Conventions & Form 4562

To calculate MACRS depreciation, multiply the asset’s original cost basis by the IRS percentage-table rate that matches its property class, depreciation system, timing convention, and current year in the recovery period. Four inputs drive the entire calculation: cost basis, property class, whether you’re using the General Depreciation System (GDS) or the Alternative Depreciation System (ADS), and the applicable convention. Once you have those, the annual deduction is a single multiplication using the tables in IRS Publication 946.¹

Before you touch a table, check whether Section 179 or 100% bonus depreciation will let you write the whole thing off in year one. If either does, the annual math below may never apply.

Step 1: Determine the Cost Basis

Cost basis is what you paid for the asset, plus every expense needed to put it in service. Sales tax, freight, and installation all get added in. A $45,000 machine with $3,000 shipping and $2,000 installation has a depreciable basis of $50,000.²

Use the original cost basis for every year of the calculation, not the adjusted basis. This is the point where people trip up. When you calculate depreciation by hand using the declining-balance formula, you apply the rate to the remaining book value. When you use the IRS percentage tables, you always multiply against the original basis. The tables already build the declining pattern into the percentages.

Step 2: Identify the Property Class and Recovery Period

Every depreciable asset falls into a class that sets the number of years across which you spread deductions. Section 168(e) of the Internal Revenue Code assigns classes based on the asset’s class life.³ The classes you’ll encounter most often:

5-year property: computers, office machinery, automobiles, and research equipment.
7-year property: office furniture, fixtures, and most general-purpose machinery.
15-year property: land improvements like sidewalks and fences, plus qualified improvement property.
27.5-year property: residential rental buildings.
39-year property: nonresidential (commercial) real property.

Three-year, 10-year, and 20-year classes also exist for specific asset types. Publication 946 contains detailed tables sorting hundreds of specific assets into classes when you’re unsure where something belongs.¹

Step 3: Choose the Depreciation System

MACRS has two systems. GDS is the default and produces larger deductions in the early years through accelerated methods. ADS uses straight-line depreciation over longer recovery periods, which delays the tax benefit.

Most taxpayers use GDS. You’re required to use ADS for certain property, including tangible property used predominantly outside the United States and tax-exempt bond-financed property. Once made, the election is generally permanent for that asset.⁴

Step 4: Apply the Correct Convention

Because assets go into service at different points during the year, MACRS uses conventions to standardize the first-year and last-year calculations. You don’t pick which one applies.

Half-year convention: the default for most personal property. Every asset placed in service that year is treated as acquired at the midpoint, so you get half a year of depreciation in the first year and the final year of recovery.⁵
Mid-quarter convention: mandatory when more than 40% of the personal property you place in service during the year goes into service in the last three months.⁵
Mid-month convention: applies to all real property. Depreciation begins in the middle of the month the building is placed in service.⁵

The mid-quarter rule catches people off guard. Buy a desk in March and a $200,000 machine in November, and if the machine puts you over the 40% threshold, every asset you placed in service that year switches to mid-quarter timing, not just the November purchase. That changes the percentages for all of them.

Step 5: Look Up the Table Percentage and Multiply

With the four inputs fixed, find the correct table in Publication 946, look up the percentage for the current year of the recovery period, and multiply by the original cost basis.¹

The standard GDS table for 7-year property under the half-year convention:

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%

Recovery spans eight tax years even though it’s 7-year property. The half-year convention gives you only half a year’s depreciation in year one, so the other half spills into an eighth year. Stay on the same table for the life of the asset.

Worked Example

You place $70,000 of office furniture in service in March 2026. Office furniture is 7-year property under GDS, and with no mid-quarter issue, the half-year convention applies.

Year 1 (2026): $70,000 × 14.29% = $10,003
Year 2 (2027): $70,000 × 24.49% = $17,143
Year 3 (2028): $70,000 × 17.49% = $12,243
Year 4 (2029): $70,000 × 12.49% = $8,743
Year 5 (2030): $70,000 × 8.93% = $6,251
Year 6 (2031): $70,000 × 8.92% = $6,244
Year 7 (2032): $70,000 × 8.93% = $6,251
Year 8 (2033): $70,000 × 4.46% = $3,122

The full $70,000 basis gets recovered.

Year of Disposal

Sell or retire the asset before the end of recovery and you don’t get a full year of depreciation for the final year. Under the half-year convention, take half the depreciation that would otherwise apply for that year, regardless of the month you dispose of the asset. Under the mid-quarter convention, take depreciation through the midpoint of the quarter of disposal.¹

Sell the furniture above in October 2029, and the year-4 deduction becomes $8,743 × 50% = $4,372.

Check First-Year Write-Offs Before You Use the Tables

Two provisions can eliminate the annual calculation entirely by letting you deduct the whole cost in year one.

Section 179 Expensing

Section 179 lets you deduct the full purchase price of qualifying business equipment in the year it’s placed in service, up to a dollar limit. 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 $4,090,000.¹

The Section 179 deduction can’t exceed your taxable business income for the year. Any unused portion carries forward.

100% Bonus Depreciation

The One, Big, Beautiful Bill Act made 100% bonus depreciation permanent for qualifying property acquired after January 19, 2025. You can deduct the entire cost of eligible new or used business assets in the first year, with no dollar cap.⁶

Bonus has no taxable income limitation and can create or increase a net operating loss. It applies automatically to qualifying property unless you elect out. Most tangible personal property with a recovery period of 20 years or less qualifies, along with qualified improvement property. You can elect out on a class-by-class basis if you’d rather spread deductions using the tables.

Order of Operations

Apply Section 179 first, then bonus depreciation to any remaining cost, then regular MACRS to whatever is left. On a $100,000 machine where you elect $60,000 of Section 179, the remaining $40,000 is eligible for bonus depreciation. Claim both and the percentage tables have nothing left to work with. The table math only matters when you’ve elected out of bonus depreciation or the property doesn’t qualify for either first-year provision.

Where Special Rules Change the Answer

Passenger Vehicles

Passenger automobiles are subject to annual dollar caps that override normal MACRS. Even with bonus depreciation or Section 179, these caps limit your total deduction. For passenger automobiles placed in service in 2026, with bonus depreciation the first-year cap is $20,300; without bonus it’s $12,300. Year 2 is $19,800, year 3 is $11,900, and each succeeding year is $7,160.⁷

These caps apply to vehicles with a gross vehicle weight of 6,000 pounds or less. Heavier SUVs and trucks are exempt, which is why tax planners talk about the “6,000-pound rule.”

Listed Property and the 50% Business Use Rule

Passenger vehicles, entertainment equipment, and certain other assets the IRS designates are treated as “listed property.” Business use must exceed 50% to claim accelerated MACRS or Section 179 on listed property. At 50% or below, you must use straight-line depreciation over the ADS recovery period.⁸

If accelerated depreciation was allowed and business use later drops to 50% or below, you recapture the excess as income on Form 4797. Keep contemporaneous mileage and use logs; reconstructed estimates don’t hold up.

Qualified Improvement Property

Interior improvements to nonresidential buildings made after the building was originally placed in service are qualified improvement property (QIP), classified as 15-year property.⁴ Building enlargements, elevators and escalators, and changes to the internal structural framework are excluded. Improvements made during initial construction don’t qualify.

QIP placed in service after January 19, 2025, qualifies for 100% bonus depreciation.⁶

What Happens When You Sell

Accelerated deductions aren’t free. Sell a depreciated asset for more than its adjusted basis and the IRS recaptures your prior deductions as ordinary income. Section 1245 governs personal property: gain attributable to depreciation you claimed (or could have claimed) is taxed at ordinary income rates, not capital gains rates.⁹

Buy equipment for $50,000, take $30,000 in MACRS deductions, and your adjusted basis is $20,000. Sell for $35,000 and the $15,000 gain is fully recaptured as ordinary income because it falls within the $30,000 of depreciation taken. Only gain above total depreciation would get capital gains treatment.

Report the sale on Form 4797. Depreciable personal property sold at a gain goes in Part III; property sold at a loss and held more than one year goes in Part I.¹⁰

Reporting on Form 4562

You report MACRS deductions on Form 4562, Depreciation and Amortization. GDS and ADS figures go in Part III, listed property in Part V, and Section 179 deductions in Part I.⁸

Attach Form 4562 to your primary return: with Schedule C and Form 1040 for sole proprietors, with Form 1120 for corporations. You must file it any year you place new depreciable property in service, claim a Section 179 deduction, or report depreciation on listed property.⁸

You don’t need Form 4562 every year simply because you have depreciable assets. If you placed no new property in service, aren’t claiming Section 179, and have no listed property, continuing MACRS depreciation can be reported directly on Schedule C or the applicable form.

How Long to Keep the Records

Keep records relating to depreciable property until the period of limitations expires for the tax year in which you dispose of the property. That means holding your depreciation schedules, purchase receipts, and cost basis documentation for as long as you own the asset, plus at least three years after the return reporting its sale or retirement.¹¹

For 7-year property placed in service in 2026 and sold in 2034, records need to survive from 2026 to at least 2037. If the IRS opens an examination or you file an amended return, those original documents are what substantiate your basis and every deduction along the way.

1
Internal Revenue Service. Publication 946 – How To Depreciate Property
2
Office of the Law Revision Counsel. 26 USC 1012 – Basis of Property Cost
3
Office of the Law Revision Counsel. 26 US Code 168 – Accelerated Cost Recovery System
4
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
5
Internal Revenue Service. Depreciation Frequently Asked Questions
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 – Depreciation Limitations for Passenger Automobiles
8
Internal Revenue Service. Instructions for Form 4562
9
Office of the Law Revision Counsel. 26 USC 1245 – Gain from Dispositions of Certain Depreciable Property
10
Internal Revenue Service. Instructions for Form 4797
11
Internal Revenue Service. How Long Should I Keep Records