What Is Straight-Line Depreciation? Formula, MACRS, and Conventions

Straight line depreciation spreads an asset’s cost in equal amounts across each year of its useful life. The formula subtracts expected salvage value from the cost basis, then divides by the number of years you plan to use the asset. For federal tax filings, the IRS uses a modified version of the method under MACRS (the Modified Accelerated Cost Recovery System): salvage value is ignored, and the recovery period is set by asset class rather than your own estimate.

The Formula and a Worked Example

Three inputs drive the calculation.

Cost basis is everything you paid to acquire the asset and get it ready for use. That includes the purchase price plus shipping, installation, sales tax, and similar setup costs.¹

Salvage value is your estimate of what the asset will be worth when you’re done with it. Some businesses base this on used-market resale prices for similar equipment. If you expect the asset to be worthless at the end of its life, salvage value is zero.

Useful life is how long the asset will remain productive. For financial statements, a company can set this from internal experience. For tax filings, the IRS assigns fixed recovery periods by property class in Publication 946.²

The math:

Annual Depreciation = (Cost Basis − Salvage Value) ÷ Useful Life

Say you buy a delivery truck for $50,000 and expect to sell it for $10,000 after five years. Subtract $10,000 from $50,000 to get a $40,000 depreciable base. Divide by five years, and annual depreciation is $8,000. The truck’s book value drops by that same $8,000 each year until it reaches the $10,000 salvage floor.

How MACRS Changes the Formula for Taxes

The formula above works for financial statements. The IRS doesn’t use it for tax returns. Two things change under MACRS.

First, salvage value is not part of the equation. You depreciate the entire cost basis down to zero.² Second, you don’t pick your own useful life. The IRS assigns a recovery period based on the property class.

The most common recovery periods under the General Depreciation System (GDS) are:

5-year property: computers, copiers, cars, light trucks, and certain manufacturing equipment
7-year property: office furniture, fixtures, and most machinery not assigned to another class
15-year property: land improvements like fences, roads, and parking lots
27.5 years: residential rental buildings
39 years: nonresidential commercial buildings like offices, stores, and warehouses

The Alternative Depreciation System (ADS) uses longer recovery periods and always requires straight line. Under ADS, residential rental property has a 30-year recovery period and nonresidential real property stretches to 40 years.²

Back to that $50,000 truck on a tax return. You’d ignore the salvage value and depreciate the full $50,000 over five years. Electing straight line under MACRS-GDS gives you $10,000 per year before the placed-in-service conventions adjust the first and last years.

First-Year and Final-Year Conventions

You almost never get a full year of depreciation in the year you buy an asset, even if you bought it on January 2. The IRS standardizes the placed-in-service date using conventions.

Half-Year Convention

This is the default for most personal property (everything except buildings). The asset is treated as placed in service at the midpoint of the year. You get half the normal annual deduction in year one, the full amount each year in between, and half again in the final year. A five-year asset actually generates deductions across six calendar years because of those two half-year bookends.³

Mid-Quarter Convention

If more than 40% of the total depreciable basis of all personal property you placed in service during the year was put in service during the last three months, you must use the mid-quarter convention instead. Each asset is then treated as placed in service at the midpoint of the quarter it was actually acquired. The rule exists to prevent businesses from loading up on December purchases to claim a half-year of depreciation on just a few weeks of ownership.²

Mid-Month Convention

Buildings follow a different rule. Residential rental property and nonresidential real property use the mid-month convention, treating the asset as placed in service at the midpoint of the month acquired. Buy a warehouse on March 3 or March 28, and you get the same deduction for March: half a month’s worth.³

When Straight Line Is Required Rather Than Optional

Under GDS, the default method for most personal property is an accelerated one such as 200% declining balance. Straight line is an election. But in several situations, the IRS mandates ADS with straight line. You must use ADS for:

Listed property used 50% or less for business. If a vehicle, computer, or other listed property doesn’t clear the 50% business-use threshold, straight line over the ADS recovery period is your only option.
Tax-exempt use property, or property financed with tax-exempt bonds.
Property used predominantly outside the United States.
Farming property when you’ve elected out of the uniform capitalization rules for certain farming costs.
Real property held by a business that elected out of the interest deduction limit under Section 163(j).

Real property is always depreciated using straight line, even under GDS. A residential rental building gets 27.5 years, and a commercial building gets 39 years. There is no accelerated option for buildings.

What Property Can Be Depreciated

Not everything you buy for business qualifies. The IRS requires that depreciable property meet all of these conditions:

You own it. Leased equipment is generally the lessor’s depreciation, not yours.
You use it for business or income production. Purely personal-use property doesn’t qualify.
It has a determinable useful life. It must wear out, become obsolete, or get used up over time.
It lasts more than one year. Short-lived supplies and materials are deducted as current expenses instead.

⁴

Land is the biggest exclusion. It doesn’t wear out, so you can never depreciate it. When you buy a building, you allocate the purchase price between the land and the structure, and only the structure is depreciable.² Certain intangible assets like goodwill, trademarks, and patents acquired in a business purchase are amortized over 15 years under Section 197.⁵

Consider Faster Write-Offs First

Before committing to straight line on a tax return, look at two provisions that may let you deduct the entire cost of an asset in the year you buy it.

Bonus Depreciation

The One, Big, Beautiful Bill Act restored a permanent 100% additional first-year depreciation deduction for qualified property acquired after January 19, 2025. For most new (and qualifying used) tangible personal property placed in service in 2026, you can deduct the full cost in year one.⁶ If you’d rather spread the deduction out, you can elect 40% bonus depreciation instead, or opt out of bonus depreciation entirely and use standard MACRS (including straight line if you prefer).

Section 179 Expensing

Section 179 lets you deduct the cost of qualifying property in the year you place it in service, up to an annual limit. For 2026, the maximum Section 179 deduction is $2,560,000, and it begins phasing out dollar-for-dollar once total qualifying property placed in service exceeds $4,090,000. Unlike bonus depreciation, Section 179 can’t create or increase an overall business loss. Any unused portion carries forward.

Both provisions apply before regular depreciation. Straight line depreciation enters the picture when you don’t use these accelerated options, when your property doesn’t qualify for them, or when spreading the deduction across multiple years better matches your tax planning goals. Businesses expecting higher income in future years sometimes prefer straight line to preserve deductions for when they will be worth more.

How to Elect Straight Line on Your Return

You report depreciation on IRS Form 4562, Depreciation and Amortization.⁷ Under MACRS, most personal property defaults to an accelerated method. To elect straight line instead, enter “S/L” as the depreciation method for that property class on Form 4562.⁸

The election applies to all property within a given class that you place in service during that tax year. You can’t cherry-pick individual assets within the same class. And the election is irrevocable: once you choose straight line for a class of property in a given year, you’re locked in for those assets.⁸

File the election on Form 4562 attached to either the original return for the year the property was placed in service or an amended return filed within the statutory time limit. Miss that window and the IRS applies the default accelerated method.

What Happens When You Sell

Depreciation reduces your taxable income each year, but the IRS collects some of that benefit back when you sell the asset for more than its depreciated book value. The recapture rules differ for personal property and real property.

Personal Property (Section 1245)

When you sell equipment, vehicles, or other depreciable personal property at a gain, the portion of the gain attributable to depreciation you claimed is taxed as ordinary income rather than at the lower capital gains rate. The ordinary income amount is the lesser of the total depreciation you took or the actual gain on the sale. Any gain above that qualifies as a Section 1231 gain, typically taxed at long-term capital gains rates.⁹

Example: you bought equipment for $50,000 and claimed $30,000 in straight line depreciation, leaving an adjusted basis of $20,000. You sell it for $35,000. The $15,000 gain is all taxed as ordinary income because it’s less than the $30,000 in depreciation you claimed.

Real Property (Section 1250)

Buildings follow a different recapture framework. Because real property is already required to use straight line, there’s typically no “additional depreciation” above straight line to recapture as ordinary income under Section 1250.¹⁰ Instead, the gain attributable to straight line depreciation is classified as “unrecaptured Section 1250 gain” and taxed at a maximum rate of 25%, which sits between ordinary income rates and the standard long-term capital gains rate. Any gain beyond the total depreciation claimed qualifies for the regular long-term capital gains rate.

You report these transactions on Form 4797, Sales of Business Property. Personal property recapture runs through Part III of the form; real property dispositions may involve both Part I and Part III depending on the holding period and gain components.⁹ Recapture applies whether you used straight line or an accelerated method, so factor it into your sale price expectations well before you list a property or a piece of equipment.

1
Internal Revenue Service. Publication 551 (12/2025), Basis of Assets
2
Internal Revenue Service. Publication 946 (2025), How To Depreciate Property
3
eCFR. 26 CFR 1.168(d)-1 – Applicable Conventions, Half-Year and Mid-Quarter Conventions
4
Internal Revenue Service. Topic No. 704, Depreciation
5
Office of the Law Revision Counsel. 26 U.S. Code 197 – Amortization of Goodwill and Certain Other Intangibles
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. About Form 4562, Depreciation and Amortization (Including Information on Listed Property)
8
Internal Revenue Service. Instructions for Form 4562 (2025)
9
Internal Revenue Service. Publication 544 (2025), Sales and Other Dispositions of Assets
10
Office of the Law Revision Counsel. 26 USC 1250 – Gain From Dispositions of Certain Depreciable Realty