What Can and Cannot Be Depreciated for Taxes?

For federal tax purposes, you can depreciate property you own that is used in a business or income-producing activity, wears out or becomes obsolete over time, and has a useful life of more than one year. What can and cannot be depreciated for taxes turns on those four conditions: meet them and the asset is depreciable, miss any one and it is not. Land, inventory, property you use only personally, and items that come and go within a single tax year fall outside the rules no matter how you hold them.¹

The Four Tests Every Depreciable Asset Must Pass

Federal law allows a deduction for the wear, tear, and obsolescence of property used in a business or held to produce income.² Before you get to methods or timelines, the asset has to clear four hurdles.

You own it. A leased item you use but do not own is depreciated by the lessor, not by you. A life tenant, by contrast, can depreciate property even though someone else holds the remainder interest.
You use it for business or income production. Rental property counts. Purely personal property does not.
It has a determinable useful life. The property must be something that wears out, decays, gets used up, or becomes obsolete.³
It lasts more than one year. Supplies and materials consumed within a single year are current expenses instead.

Clear all four and the asset is depreciable. The next question is which category it falls into, because that decides the recovery period and the method.

Assets You Can Depreciate

Equipment, Furniture, and Technology

Physical business assets run through the Modified Accelerated Cost Recovery System (MACRS), which sorts each asset into a class with a set recovery period. Two classes cover most of what a small or mid-size business owns:

5-year property: automobiles, trucks, buses, computers, copiers, office machinery, and research equipment.³
7-year property: office furniture and fixtures such as desks, filing cabinets, and safes. Anything without a specifically assigned class life defaults here.

Specialized property has its own classes running from 3 to 20 years, covering things like certain agricultural equipment, water transportation property, and land improvements such as fences and roads.

Vehicles

Business cars, trucks, and vans are 5-year MACRS property.⁴ Passenger automobiles, though, hit annual dollar caps that limit the deduction regardless of what the vehicle actually cost. For passenger vehicles placed in service in 2026 with bonus depreciation applied, the caps are $20,300 in year one, $19,800 in year two, $11,900 in year three, and $7,160 for each year after. Without bonus depreciation, the first-year cap drops to $12,300.⁵

Heavy vehicles with a gross vehicle weight rating above 6,000 pounds escape the passenger auto caps. SUVs between 6,000 and 14,000 pounds can qualify for a Section 179 deduction of up to $32,000, and heavy work trucks that are not classified as SUVs may qualify for the full Section 179 deduction with no special cap.⁶

Buildings and Real Estate

Buildings depreciate on the straight-line method over a period fixed by statute:

Residential rental property: 27.5 years.
Commercial (nonresidential) property: 39 years.

These periods cover the structure itself plus components integral to its operation, including plumbing, electrical wiring, roofing, and HVAC.⁷

Interior improvements to a commercial building already in service get better treatment. Qualified improvement property (QIP) uses a 15-year recovery period and currently qualifies for 100 percent bonus depreciation. Enlarging the building, adding elevators or escalators, and changes to the structural framework do not count as QIP.

Intangible Assets

Patents, trademarks, copyrights, trade names, goodwill, and similar assets have no physical form and are recovered through amortization rather than depreciation. Most intangibles acquired as part of a business purchase fall under Section 197, which spreads the cost over 15 years using the straight-line method.⁸ Goodwill is the most common example: pay more for a business than its tangible assets are worth, and the excess is typically allocated to goodwill and amortized over 15 years. Software that is not commercially available to the general public falls into this category as well.⁹

Off-the-shelf software bought separately from a business acquisition is treated differently. It is generally 3-year MACRS property or can be expensed immediately under Section 179.

Assets You Cannot Depreciate

Some property is off-limits no matter how you use it.

Land. The ground beneath a building does not wear out and has no determinable useful life. When you buy real estate, the purchase price has to be split between land and building; only the building is depreciable.
Inventory. Products held for sale to customers flow through cost of goods sold, not depreciation.
Personal-use property. A car driven only for personal errands, your primary residence, and household furniture generate no depreciation deduction.¹
Property placed in service and disposed of in the same year. It fails the more-than-one-year test.
Property you lease from someone else. The deduction belongs to the owner of the asset.

Mixed-Use Property and the Listed-Property Trap

When you use property for both business and personal purposes, only the business-use percentage is depreciable. Drive a car 70 percent for work and 30 percent for personal trips and you apply depreciation to 70 percent of the vehicle’s cost basis.

Certain assets prone to personal use are classified as “listed property.” Vehicles, computers not used exclusively at a regular business location, and property used for entertainment all fall in this group. Listed property has to be used more than 50 percent for business to qualify for Section 179, bonus depreciation, or accelerated MACRS rates. Drop below 50 percent and the asset switches to straight-line depreciation over a longer alternative recovery period. If business use later falls below 50 percent after you have already claimed accelerated deductions, the excess depreciation gets recaptured as income.³

Recordkeeping matters more here than anywhere else. The IRS expects contemporaneous logs of business versus personal use, particularly for vehicles, and reconstructed estimates rarely hold up on audit.

Small Purchases You Can Skip Depreciating

Not every business purchase has to go through depreciation. The de minimis safe harbor election lets you expense items costing $2,500 or less per invoice or per item, even if they would otherwise need to be capitalized. Businesses with audited financial statements get a $5,000 threshold.¹⁰

To use it, you need a written accounting policy in place at the start of the tax year and you have to attach the election to a timely filed return. It applies annually, so the election is made fresh each year. For businesses that regularly buy tools, supplies, and low-cost equipment, the safe harbor removes a lot of tracking that would not be worth the trouble.

Faster Write-Offs When the Asset Does Qualify

Once you have established an asset is depreciable, two provisions can let you deduct the full cost in year one instead of spreading it out.

Section 179 Expensing

Section 179 lets you deduct the entire purchase price of qualifying equipment, software, and certain other property in the year you place it in service. For 2026, the limit is $2,560,000 of qualifying purchases, phasing out dollar for dollar once total qualifying purchases for the year exceed $4,090,000.⁶ The deduction also cannot exceed your business’s taxable income for the year. A business with $100,000 of net income that buys $150,000 of equipment is capped at $100,000, with the unused amount carrying forward.

Bonus Depreciation

Bonus depreciation works alongside Section 179 and has no income limitation. Under the One, Big, Beautiful Bill Act, qualifying property acquired after January 19, 2025, is eligible for a permanent 100 percent additional first-year depreciation deduction.¹¹ It applies to both new and used assets as long as the property is new to you, and unlike Section 179 it can create or increase a net operating loss. Qualified improvement property is also eligible, which means renovating the interior of a leased commercial space can potentially be deducted in full in year one instead of over 15 years.

What Happens to Depreciation When You Sell

Depreciation lowers your tax basis in the asset, and when you sell at a gain the IRS wants back some of the earlier tax benefit. The rules differ by asset type.

For tangible personal property like equipment and vehicles, Section 1245 taxes gain attributable to prior depreciation as ordinary income rather than at capital gains rates. Recapture covers the full amount previously deducted, including any Section 179 or bonus depreciation.¹²

Real estate is treated somewhat better. Because buildings use straight-line depreciation, there is no excess to recapture at ordinary rates. Instead, prior depreciation is taxed as unrecaptured Section 1250 gain at a maximum rate of 25 percent.¹³

Recapture is mandatory. Tax is owed on the depreciation whether you actually claimed it or not, because the calculation runs on the amount “allowed or allowable.” Skipping deductions on a rental property does not protect you from recapture when you sell.

1
Internal Revenue Service. Topic No. 704, Depreciation
2
Office of the Law Revision Counsel. 26 U.S. Code 167 – Depreciation
3
Internal Revenue Service. Publication 946 – How To Depreciate Property
4
Internal Revenue Service. Depreciation Frequently Asked Questions
5
Internal Revenue Service. Rev. Proc. 2026-15
6
Internal Revenue Service. Rev. Proc. 2025-32
7
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
8
Office of the Law Revision Counsel. 26 U.S. Code 197 – Amortization of Goodwill and Certain Other Intangibles
9
Internal Revenue Service. Intangibles
10
Internal Revenue Service. Tangible Property Final Regulations
11
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
12
Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property
13
Internal Revenue Service. Topic No. 409, Capital Gains and Losses