How to Write Off Fixed Assets for Tax Purposes

To write off fixed assets for tax purposes, you either deduct the full cost in the year you place the asset in service or spread the cost across a set number of years through depreciation. Which path applies depends on the price tag and what the asset is. Purchases at or below the de minimis safe harbor threshold can be expensed immediately. Larger purchases of qualifying equipment can be fully deducted using Section 179 or 100% bonus depreciation. Everything else, including buildings, gets depreciated under the Modified Accelerated Cost Recovery System (MACRS) on a schedule the IRS sets, running anywhere from 3 to 39 years.¹

What You Need Before You Deduct Anything

Every write-off rests on three data points, and getting them wrong unravels the deduction.

Cost basis: The purchase price plus every cost to get the asset ready for use, including shipping, sales tax, assembly, and professional installation.
Placed-in-service date: Depreciation begins the day the asset is ready and available for its intended use, not the day you paid for it. Equipment bought in November but not operational until January is a January asset.¹
Recovery period: The number of years MACRS assigns to the asset class. This is a tax figure, not a prediction of physical life.

Salvage value, which matters for financial-statement depreciation, is zero for tax depreciation under MACRS. Record each asset’s cost, location, placed-in-service date, and accumulated depreciation in a fixed asset ledger. If you can’t document your cost basis in an audit, the IRS can disallow the deduction entirely.

De Minimis Safe Harbor for Low-Cost Purchases

Not every purchase needs to be capitalized. The de minimis safe harbor lets you deduct low-cost items immediately.² Businesses with an applicable financial statement (generally audited financials or filings with the SEC or another regulator) can expense items costing $5,000 or less per invoice or per item. Businesses without one, which covers most small businesses, use a $2,500 threshold.

To use the safe harbor, attach a statement titled “Section 1.263(a)-1(f) de minimis safe harbor election” to your timely filed return for the year in question.² Miss the election and you have to capitalize the purchase.

Section 179 Immediate Expensing

Section 179 lets you deduct the full cost of qualifying business property in the year it’s placed in service.³ For tax year 2026, the maximum deduction is $2,560,000. It phases out dollar-for-dollar once total qualifying property placed in service during the year exceeds $4,090,000, and disappears entirely at $6,650,000.

Qualifying property includes tangible personal property such as machinery, equipment, computers, and off-the-shelf software, plus certain real property improvements like roofs, HVAC, fire protection, alarm systems, and security systems. The property must be purchased (not gifted or inherited) and used in the active conduct of a trade or business.

One limit trips people up: your Section 179 deduction for the year cannot exceed your taxable income from all active trades or businesses. If your business nets $80,000 and you buy $200,000 of equipment, your Section 179 deduction caps at $80,000. The unused portion carries forward. Heavy SUVs with a gross vehicle weight above 6,000 pounds carry a separate cap of approximately $32,000 for the Section 179 portion, though the remaining cost can still be depreciated or claimed as bonus depreciation.

100% Bonus Depreciation

Bonus depreciation under Section 168(k) is a first-year deduction taken after any Section 179 deduction and before regular MACRS.⁴ The One Big Beautiful Bill Act permanently restored 100% bonus depreciation for qualifying property acquired and placed in service after January 19, 2025.⁵ For 2026, that means the entire cost of eligible property deducted in year one.

To qualify, the asset must have a MACRS recovery period of 20 years or less, or be computer software, water utility property, or certain film, television, theatrical, or sound recording productions. Buildings with 27.5- or 39-year recovery periods don’t qualify, though certain qualified improvement property does.

Unlike Section 179, bonus depreciation has no annual dollar cap and no taxable-income limit. It can even create or increase a net operating loss. It also applies to used property so long as the asset is new to you. If spreading the deduction over several years serves you better, you can elect out of bonus depreciation on a class-by-class basis.

MACRS for What’s Left

MACRS is the default depreciation method for most tangible property placed in service after 1986.⁶ You don’t pick a useful life; the IRS assigns one.

Recovery Period Classes

The most common MACRS classes:¹

3-year: Over-the-road tractor units, certain manufacturing tools, racehorses.
5-year: Cars, light trucks, computers, office equipment, research equipment, appliances.
7-year: Office furniture, agricultural machinery, and most assets not assigned elsewhere.
15-year: Land improvements like fences, roads, sidewalks, landscaping.
27.5-year: Residential rental buildings.
39-year: Nonresidential real property such as office buildings, warehouses, and retail space.

An asset that doesn’t clearly fit a listed class defaults to 7 years under the General Depreciation System.

Conventions and the Mid-Quarter Trap

MACRS uses “conventions” to fix how much depreciation you get in the first and final years. The half-year convention is the default for personal property: everything is treated as placed in service at mid-year, producing half a year of depreciation up front. Real property uses a mid-month convention, treating each asset as placed in service at the midpoint of its actual month.¹

The mid-quarter convention triggers when more than 40% of your total depreciable property for the year is placed in service during the last three months.⁷ When it kicks in, every asset acquired that year is treated as placed in service at the midpoint of its actual quarter. One expensive December purchase can pull all of your other assets into mid-quarter treatment and shrink first-year deductions across the board.

Passenger Vehicle Caps

Even with Section 179 and bonus depreciation available, passenger automobiles are subject to annual depreciation caps under Section 280F. For vehicles placed in service in 2026, the first-year limit is $20,300 with bonus depreciation and $12,300 without.⁸

These caps apply to cars and light trucks with a gross vehicle weight of 6,000 pounds or less. Heavier vehicles, including full-size work trucks, cargo vans, and qualifying heavy SUVs, are not subject to Section 280F, which is why those vehicles produce much larger first-year deductions.

Listed Property Recordkeeping

Certain assets that lend themselves to personal use get extra scrutiny. “Listed property” includes passenger vehicles, aircraft, and property used for entertainment or recreation.¹ If you claim depreciation or a Section 179 deduction on listed property, you must prove business use with contemporaneous records showing the date of each use, the business purpose, and a measure of business use (mileage for vehicles, hours for other property). A weekly log works, provided it’s kept close to the time of actual use.

If business use of listed property drops to 50% or below in any year, you lose access to accelerated methods and may have to recapture previously claimed deductions as ordinary income.

Selling or Retiring the Asset

When you sell, scrap, or abandon a business asset, calculate its adjusted basis (original cost minus accumulated depreciation), then compare that to the sale price. Sell for more and you have a gain. Sell for less, or abandon a nonfunctional asset, and you have a deductible loss. Remove the asset and its accumulated depreciation from your balance sheet at the time of disposal and log the date, sale price, and buyer.

Recapture Under Section 1245 (Equipment)

Selling tangible personal property at a gain doesn’t automatically produce capital-gain rates. Gain up to the total depreciation you previously claimed is taxed as ordinary income under Section 1245.⁹ Only gain above the original cost basis gets long-term capital gain treatment.

An example: you buy a truck for $50,000 and claim $30,000 in depreciation, leaving an adjusted basis of $20,000. Sell for $35,000 and your $15,000 gain is entirely ordinary income, because it falls short of the $30,000 of depreciation claimed.¹⁰

Recapture Under Section 1250 (Real Property)

Real property gets more favorable treatment. Depreciation claimed on a building is recaptured as “unrecaptured Section 1250 gain,” taxed at a maximum rate of 25% rather than the ordinary income rate. Any gain above the original cost basis is taxed at regular long-term capital gain rates.

The Forms: 4562 and 4797

Form 4562 reports all depreciation and amortization for the year.¹¹ Part I covers Section 179, Part II covers bonus depreciation (the “special depreciation allowance”), and Part III covers regular MACRS.⁶ Separate sections handle listed property and amortization. File Form 4562 if you’re claiming depreciation for property placed in service during the year, taking a Section 179 deduction, or claiming depreciation on any listed property.

Form 4797 handles sales and dispositions of depreciable business property, not Schedule D.¹² Part I reports Section 1231 gains and losses on property held more than one year. Part II covers ordinary gains and losses. Part III is where you compute recapture under Sections 1245 and 1250. A typical equipment sale at a gain uses both Part III (to figure the recapture) and Part I (for any remaining gain).

How Long to Keep the Records

The retention rule isn’t a flat number of years. Keep records related to depreciable property until the period of limitations expires for the tax year in which you dispose of it.¹³ The general limitations period is three years from the date you file the return for the disposal year.

Practically, that means keeping purchase invoices, depreciation schedules, and improvement records for the entire time you own the asset, plus three years after filing the return that reports the sale, retirement, or abandonment. For a building depreciated over 39 years, that can stretch past four decades. If you receive property in a tax-free exchange, you also need the records from the original property to establish your carryover basis.¹⁴

1
Internal Revenue Service. Publication 946 (2025), How To Depreciate Property
2
Internal Revenue Service. Tangible Property Final Regulations
3
Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
4
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
5
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
6
Internal Revenue Service. Instructions for Form 4562 (2025)
7
eCFR. 26 CFR 1.168(d)-1 – Applicable Conventions, Half-Year and Mid-Quarter Conventions
8
Internal Revenue Service. Revenue Procedure 2026-15 – Limitations on Depreciation Deductions for Passenger Automobiles Placed in Service During Calendar Year 2026
9
Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property
10
Internal Revenue Service. Publication 544 (2025), Sales and Other Dispositions of Assets
11
Internal Revenue Service. About Form 4562, Depreciation and Amortization (Including Information on Listed Property)
12
Internal Revenue Service. Instructions for Form 4797 (2025)
13
Internal Revenue Service. How Long Should I Keep Records
14
Internal Revenue Service. Publication 583, Starting a Business and Keeping Records