FF&E depreciation is how a business recovers the cost of furniture, fixtures, and equipment over time instead of deducting the full price the year it’s purchased. On your financial statements, that recovery follows GAAP and usually stretches across the asset’s estimated useful life. On your tax return, it follows the IRS’s Modified Accelerated Cost Recovery System, and in most cases you can accelerate the write-off dramatically using Section 179 or bonus depreciation. The two tracks run in parallel and almost never produce the same number in any given year.
What Counts as FF&E
FF&E covers the tangible items a business buys for ongoing operations rather than resale. All three subcategories share one trait: a useful life longer than a single accounting period.
- Furniture: movable items that support daily work, such as desks, chairs, conference tables, and filing cabinets.
- Fixtures: items attached to the building that remain personal property rather than becoming part of the structure. Retail shelving bolted to the floor, built-in cabinetry, and commercial lighting arrays are typical examples.
- Equipment: machinery, technology, and tools that directly produce goods or deliver services, from commercial refrigerators and server racks to manufacturing robots and delivery vehicles.
Supplies and inventory don’t belong here. Those get consumed or sold within the year and never enter the depreciation system.
Capitalize First, Then Depreciate
Depreciation only applies to items you capitalize. Every FF&E purchase forces a threshold question: does the cost belong on the balance sheet as a long-term asset, or on the income statement as an immediate expense?
Your Capitalization Policy
A written capitalization policy sets the dollar cutoff. Items above the line go on the balance sheet and get depreciated; items below get expensed. There is no universal figure. A $1,000 office chair is material to a five-person startup and immaterial to a Fortune 500 company. What matters is that the policy exists in writing and is applied consistently.
The IRS De Minimis Safe Harbor
The IRS offers a safe harbor that lets you expense low-cost items regardless of useful life. If your business has an applicable financial statement (an audited statement filed with the SEC or provided to a federal agency, among other qualifying types), you can expense items costing up to $5,000 per invoice. Without an applicable financial statement, the limit is $2,500 per invoice.1Internal Revenue Service. Tangible Property Final Regulations – Frequently Asked Questions The election is made annually on your tax return and is not automatic.
Building the Cost Basis
When you capitalize an FF&E item, the recorded cost includes everything you spent to get the asset ready for use: the purchase price plus sales tax, shipping, and installation fees.2Internal Revenue Service. Topic No. 703, Basis of Assets Interest on a loan used to finance the purchase is generally not included. You expense that separately as a financing cost.
When Depreciation Actually Starts
Depreciation begins when the asset is placed in service, not when you buy it or when it arrives. The IRS defines that as the date the property is ready and available for its intended use, even if you haven’t actually started using it yet.3Internal Revenue Service. Depreciation Reminders (FS-2006-27) Equipment sitting in your warehouse still in its crate hasn’t been placed in service. The same equipment, unpacked and installed but waiting for your first customer order, has been.
Book Depreciation Under GAAP
For financial reporting, GAAP requires you to spread the asset’s cost over its estimated useful life in a systematic way. Most companies use straight-line depreciation for FF&E because the benefit these assets provide doesn’t change dramatically from year to year. A desk is equally useful in year one and year five.
To calculate straight-line depreciation, subtract the expected salvage value (what you’d get selling the asset at the end of its life) from the original cost, then divide by the number of years you expect to use it.
GAAP gives you flexibility to choose the useful life that reflects your actual experience. If your company replaces office furniture every eight years, use eight years. If your servers are obsolete after four, use four. The estimates need to be reasonable and documented.
Tax Depreciation Under MACRS
Tax depreciation works differently. The IRS doesn’t let you pick your own useful life. Instead, the Modified Accelerated Cost Recovery System assigns every asset to a property class with a fixed recovery period. For FF&E, the two most common classes are:
- 7-year property: office furniture and fixtures such as desks, file cabinets, and safes.
- 5-year property: office machinery such as copiers and calculators, computers, vehicles, and certain specialized tools.4Internal Revenue Service. Publication 946 – How To Depreciate Property
MACRS uses the 200% declining balance method for both classes, which front-loads the deductions. You take larger write-offs in the early years and smaller ones later, switching to straight-line when that produces a bigger deduction. The result is a faster tax benefit than GAAP depreciation provides on the same asset.4Internal Revenue Service. Publication 946 – How To Depreciate Property
First-Year Conventions
MACRS also uses conventions that determine how much depreciation you claim in the first year. The standard half-year convention treats all property as though it was placed in service at the midpoint of the tax year, so you get half a year’s depreciation regardless of when you actually bought it. If you place more than 40% of the year’s total property cost in service during the last three months, the mid-quarter convention takes over and reduces your first-year deduction for items placed in service early in the year.4Internal Revenue Service. Publication 946 – How To Depreciate Property
Accelerated Write-Offs: Section 179 and Bonus Depreciation
MACRS spreads deductions over five or seven years, but the tax code offers two ways to write off far more of the cost upfront. These are the tools most businesses reach for first.
Section 179 Expensing
Section 179 lets you deduct the entire purchase price of qualifying FF&E in the year you place it in service, rather than depreciating it over time.5Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets The property must be tangible personal property used in the active conduct of a business, and it must be used more than 50% for business purposes.
For tax year 2025, the maximum deduction is $2,500,000, and that amount begins to phase out dollar-for-dollar once total qualifying property placed in service exceeds $4,000,000.4Internal Revenue Service. Publication 946 – How To Depreciate Property The 2026 limits increase slightly for inflation, to approximately $2,560,000 and $4,090,000. Most small and mid-size businesses won’t bump into these caps.
The limit that catches people off guard is the income restriction. Your Section 179 deduction for the year cannot exceed the total taxable income you earned from all your active businesses. If you buy $200,000 in equipment but your combined business income is only $120,000, you can only deduct $120,000 this year. The remaining $80,000 carries forward to the next year, when you have enough income to absorb it.5Office of the Law Revision Counsel. 26 USC 179 – Election to Expense Certain Depreciable Business Assets
Bonus Depreciation at 100%
Bonus depreciation is the second accelerated option, and for 2026 it’s more powerful than it was just a year ago. The Tax Cuts and Jobs Act originally allowed 100% bonus depreciation through 2022, then phased it down to 80% in 2023, 60% in 2024, and 40% in 2025. The One, Big, Beautiful Bill, enacted in 2025, permanently reinstated 100% bonus depreciation for qualifying property acquired after January 19, 2025.6Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill Any FF&E you purchase and place in service in 2026 qualifies for a full first-year write-off.
Unlike Section 179, bonus depreciation has no dollar cap and no income limitation. You can use it to create or deepen a net operating loss, which can then be carried forward to offset income in future years. Bonus depreciation also applies to used property, not just new purchases, as long as the asset is new to you.
How the Methods Stack
Section 179, bonus depreciation, and MACRS are applied in sequence. You first apply Section 179 to as much of the cost as you choose, up to the limits. Any remaining cost basis qualifies for bonus depreciation. Whatever is left after that goes into the standard MACRS schedule. In practice, the combination of Section 179 and 100% bonus depreciation means most FF&E purchases in 2026 can be fully deducted in the year of acquisition for tax purposes, even as you depreciate the same asset slowly on your books under GAAP.
What Happens at Disposal
Depreciation ends when you sell, scrap, or retire the asset. At that point you remove both the original cost and the accumulated depreciation from the register. If you sell it, the difference between the sale proceeds and the asset’s remaining book value produces a gain or loss.
Gains don’t get the favorable capital gains rate that most people expect. Section 1245 requires that any gain on the sale of depreciable personal property be taxed as ordinary income, up to the total amount of depreciation you previously deducted.7Office of the Law Revision Counsel. 26 US Code 1245 – Gain From Dispositions of Certain Depreciable Property The logic is straightforward: you took ordinary deductions against ordinary income when you depreciated the asset, so the IRS wants ordinary tax rates back when you recoup that value through a sale. Only gain exceeding the total depreciation taken, which is rare for FF&E, would qualify for capital gains treatment.
Gains and losses from FF&E sales are reported on Form 4797 (Sales of Business Property).8Internal Revenue Service. Instructions for Form 4797 The form separates ordinary recapture income from any remaining capital gain and routes each to the correct line on your return. If you scrap an asset with remaining book value and receive nothing for it, you report a loss, but only if the asset was actually disposed of and not merely sitting idle.