Depreciation Calculator

MACRS (Modified Accelerated Cost Recovery System) is the IRS method for depreciating business and investment property placed in service after 1986, governed by IRC §168. It uses predetermined recovery periods and accelerated rates (200% or 150% declining balance, switching to straight-line) for personal property, and straight-line for real property. Assets are assigned to recovery classes — 3, 5, 7, 10, 15, 20 years for tangible personal property; 27.5 years for residential rental real estate; 39 years for nonresidential real property. IRS Publication 946 provides the full asset class table and the year-by-year percentage tables (Table A-1 through A-20).

IRC §179 lets a business immediately expense the full cost of qualifying tangible personal property placed in service during the tax year, in lieu of depreciating it over its MACRS recovery period. Post-OBBBA limits: 2024 cap was $1,220,000 (phase-out begins at $3,050,000). For 2025 the cap jumped to $2,500,000 with phase-out at $4,000,000. For 2026 indexed amounts are $2,560,000 / $4,090,000 per IRS Rev. Proc. 2025-32. §179 is limited to taxable income from the active trade or business — you cannot use §179 to create a net loss (excess carries forward indefinitely). Real property (the building) is NOT §179-eligible, but specific real-property additions are (HVAC, roofs, fire protection, alarms, security — all post-TCJA).

Bonus depreciation under IRC §168(k) is an additional first-year deduction on qualifying NEW or USED tangible property with a recovery period ≤20 years. It applies AFTER §179 and BEFORE regular MACRS. TCJA's phase-down schedule under IRC §168(k)(6)(A) had it at 80% in 2023, 60% in 2024, 40% in 2025 and 20% in 2026, expiring after 2026. OBBBA §70301 "Full expensing for certain business property" (signed July 2025, P.L. 119-21) restored 100% bonus depreciation permanently — but §70301(c)(1) applies it only to property ACQUIRED after January 19, 2025, not to property placed in service after that date. Critical gotcha: property acquired before 2025-01-20 keeps running down the old ladder no matter when it is placed in service — 40% for a 2025 placed-in-service year, 20% for 2026, 0% from 2027 — so a 2024 order installed in 2026 gets 20%, NOT the restored 100%. Bonus is automatic; you must affirmatively ELECT OUT for an entire class of property (e.g., "all my 5-year property this year") on Form 4562 if you want the slower MACRS schedule.

IRS Publication 946 Table B-1 (asset classes) and B-2 (specific industries) determine the recovery period. Common assignments: 3-year — tractors, race horses, software with ≤3yr useful life. 5-year — computers, vehicles <6,000 lbs GVWR, office machinery, R&D equipment, breeding cattle. 7-year — office furniture and fixtures, agricultural equipment, most manufacturing machinery. 10-year — vessels, single-purpose agricultural structures. 15-year — qualified improvement property (QIP), land improvements (fence, paving, landscaping), retail motor fuel outlets. 20-year — farm buildings, municipal water utility property. 27.5-year — residential rental real estate. 39-year — nonresidential real property, office buildings.

Three conventions decide what fraction of the first year's depreciation you take. (1) HALF-YEAR (default for personal property): treats all assets as placed in service mid-year — half a year's depreciation in year 1, half a year in year n+1. (2) MID-QUARTER (mandatory if >40% of total cost basis acquired in Q4): each asset gets the convention of its quarter — Q1 87.5%, Q2 62.5%, Q3 37.5%, Q4 12.5% of the annual rate. (3) MID-MONTH (mandatory for real property — 27.5 and 39 year): placed-in-service month counts as half a month. A March acquisition gets 9.5/12 of the year-1 rate. This calculator models the half-year convention only; if more than 40% of the year's personal property was placed in service in the fourth quarter, the IRS requires the mid-quarter convention instead (Pub 946, ch. 4) — consult the IRS mid-quarter percentage tables for that case.

IRC §280F applies stricter rules to "listed property" — passenger automobiles, property used for entertainment/recreation, and certain computers (pre-2018). To take any depreciation, business use must exceed 50%. If it drops to ≤50% in any subsequent year, you must recapture excess depreciation already taken. Passenger autos have annual depreciation caps under §280F(a) — for 2025, the year-1 cap is $20,200 with bonus / $12,200 without (IRS Rev. Proc. 2025-16). SUVs and trucks >6,000 lbs GVWR but ≤14,000 lbs GVWR escape the auto cap but have a $31,300 §179 sub-cap for 2025 (§179(b)(5)). Heavy vehicles >14,000 lbs GVWR have no §179 cap at all.

Federal sequencing: (1) Take §179 first (you elect specific assets, up to the year's cap). (2) Bonus depreciation on the remaining basis (default 100% post-OBBBA, applies automatically unless you elect out by class). (3) Regular MACRS on whatever basis remains. §179 is income-limited (cannot create a loss), bonus is not. §179 phases out dollar-for-dollar above the threshold; bonus has no phase-out. State conformity varies wildly — many states cap §179 lower (e.g., CA $25,000) or decouple from federal bonus entirely (NY, NJ, CT). Always check state conformity before optimizing the federal stack.

When you sell or dispose of depreciated property, the IRS "recaptures" some of the deductions. Two regimes: §1245 (tangible personal property — equipment, vehicles, machinery) recaptures up to the total depreciation taken as ORDINARY income (taxed at your marginal rate, up to 37%). §1250 (real property) recaptures excess accelerated depreciation as ordinary income (rare post-1986 since real property uses straight-line) and the rest as "unrecaptured §1250 gain" capped at 25% (IRC §1(h)(1)(E)). Both apply even if you didn't claim depreciation each year — §1245(a)(2) and §1250(b)(3) base recapture on "allowed or allowable" depreciation. Like-kind exchanges under §1031 defer both forms of recapture; death's §1014 stepped-up basis eliminates them entirely.

ADS (IRC §168(g)) uses straight-line method with longer recovery periods — required for tax-exempt use property, listed property with ≤50% business use, foreign-use property, and any property where you elect ADS. Common ADS periods: 5-year personal property → 5 years (same), 7-year → 10 years, residential rental → 30 years (vs 27.5 GDS), nonresidential → 40 years (vs 39 GDS). Real Estate Investor §163(j) electing-out interest-deduction businesses MUST use ADS for residential and nonresidential real property — common decision point for highly-leveraged landlords. ADS election is irrevocable for that asset class for that year.

Form 4562 (Depreciation and Amortization) is required when you (a) place new property in service during the year, (b) claim §179 on any asset, (c) claim depreciation on listed property, (d) claim a depreciation deduction for any vehicle. Part I — §179 expense. Part II — Special (bonus) depreciation and other depreciation. Part III — MACRS depreciation by class. Part IV — Summary line totals. Part V — Listed property (the most audit-prone section, demanding business-use percentage). Part VI — Amortization (start-up costs, organizational expenses §195/§248, intangibles §197 over 15 years).

QIP under IRC §168(e)(6) is any improvement made by the taxpayer to the interior of nonresidential real property after the building was first placed in service. EXCLUDES enlargements of the building, elevators, escalators, and internal structural framework. TCJA originally intended QIP to be 15-year property but a drafting error made it 39-year — the CARES Act (2020) retroactively fixed this to 15-year recovery, making QIP eligible for 100% bonus depreciation. Common QIP examples: lighting, flooring, interior partitions, HVAC inside the building (but not the rooftop unit), security systems, plumbing. The 15-year classification + 100% bonus restoration under OBBBA makes QIP one of the highest-leverage commercial-real-estate deductions available.