MACRS Depreciation
Modified Accelerated Cost Recovery System — the standard IRS method for depreciating business assets, using predetermined recovery periods and front-loaded deduction schedules.
MACRS (Modified Accelerated Cost Recovery System) is the depreciation system required for most tangible business property placed in service after 1986. It assigns each type of asset to a recovery class with a specific useful life: 3-year property (certain tools and race horses), 5-year property (computers, cars, trucks), 7-year property (office furniture and equipment), and up to 39-year property (nonresidential real estate).
Under MACRS, most personal property uses the 200% declining balance method for the first years, switching to straight-line when that method produces a larger deduction. This front-loading of deductions provides a time-value-of-money benefit because you receive larger deductions in the early years of an asset's life. Residential rental property uses a 27.5-year straight-line recovery period; nonresidential real property uses 39 years.
MACRS interacts with Section 179 expensing and bonus depreciation. A business can use Section 179 or bonus depreciation to expense an asset entirely in year one, bypassing the normal MACRS recovery schedule. If those provisions do not apply, MACRS governs how the remaining basis is recovered. The half-year convention applies in most cases, treating property as placed in service at the midpoint of the year.
How it works
MACRS assigns every type of depreciable business asset to a recovery class with a set useful life — 3-year property for certain tools, 5-year for computers and vehicles, 7-year for office furniture and equipment, and up to 39 years for nonresidential real estate — and depreciates it on a fixed schedule rather than letting you pick your own timeline. Most personal property uses the 200% declining balance method in the early years, switching to straight-line once that produces a bigger deduction, which front-loads more of the write-off into the first years of an asset's life than a simple straight-line schedule would.
You claim MACRS depreciation on Form 4562 each year the asset is in service, and it applies automatically to any qualifying business or rental property placed in service after 1986 that isn't fully expensed some other way. Residential rental buildings use a 27.5-year straight-line schedule and nonresidential real property uses 39 years — both of those are always straight-line, never declining balance, because MACRS treats real estate differently from equipment and vehicles.
MACRS is the fallback system: if you use Section 179 or bonus depreciation to expense an asset entirely in its first year, MACRS never gets involved for that asset. If those provisions don't fully cover the purchase, MACRS governs how whatever basis remains gets recovered over the years that follow. Most personal property also uses the half-year convention, which treats the asset as if it were placed in service at the midpoint of the year regardless of the actual purchase date — a detail that trips up people expecting a full year's deduction in year one.
Example: first-year MACRS deduction on 5-year property
A business buys $50,000 of computer equipment, which falls into MACRS's 5-year recovery class. The 200% declining balance rate for 5-year property is 2 divided by 5, or 40% per year, compared to a plain straight-line rate of 20% per year.
Applying the 40% rate to the full $50,000 basis gives $20,000. But the half-year convention treats the purchase as made mid-year, so the first-year deduction is halved to $10,000 — still noticeably more front-loaded than the $5,000 a straight-line half-year approach would produce, which is the whole point of MACRS's declining-balance design.
Frequently asked questions
How long does it take to depreciate a rental property under MACRS?
Does MACRS let me deduct the full cost of an asset in year one?
Why is my first-year MACRS deduction smaller than I expected?
Related Terms
Depreciation
A tax deduction that spreads the cost of a business asset over its useful life. Section 179 and bonus depreciation may allow full first-year expensing for qualifying assets.
Section 179 Deduction
An IRS provision allowing businesses to immediately deduct the full cost of qualifying equipment and property in the year it is placed in service, rather than depreciating it over time. The 2025 limit is $2,500,000 (raised by OBBBA).
Bonus Depreciation
A tax incentive allowing businesses to immediately deduct a large percentage of the cost of qualifying assets in the first year. Was phasing down under TCJA (100%→80%→60%→40%) but the One Big Beautiful Bill Act (OBBBA, 2025) permanently restored the 100% rate for property ACQUIRED after January 19, 2025 — the test is the acquisition date, not the date placed in service.
Business Expenses
Costs incurred in running a business that are deductible on your tax return if they are ordinary (common in your industry) and necessary (helpful and appropriate for your trade).