MACRS Depreciation Calculator

Understanding MACRS Depreciation

The Modified Accelerated Cost Recovery System (MACRS) is the primary depreciation method used for federal income tax purposes in the United States. Established by the Tax Reform Act of 1986, MACRS allows businesses to recover the cost of tangible property over a specified recovery period through annual depreciation deductions.

How MACRS Works

Under MACRS, assets are assigned to property classes that determine their recovery period. Personal property (equipment, vehicles, furniture) typically uses the General Depreciation System (GDS) with either the 200% or 150% declining balance method, switching to straight-line when it yields a larger deduction. Real property (buildings) uses the straight-line method over 27.5 or 39 years.

MACRS Property Classes

• 3-Year Property: Tractor units, racehorses over 2 years old, and qualified rent-to-own property.
• 5-Year Property: Automobiles, light trucks, computers, office equipment, and research equipment.
• 7-Year Property: Office furniture, fixtures, agricultural machinery, and any property not designated elsewhere.
• 10-Year Property: Water transportation equipment, single-purpose agricultural structures, and fruit-bearing trees.
• 15-Year Property: Land improvements including fences, roads, sidewalks, and shrubbery.
• 20-Year Property: Farm buildings, municipal sewers, and certain other structures.
• 27.5-Year Property: Residential rental property (apartments, rental houses).
• 39-Year Property: Nonresidential real property (office buildings, retail stores, warehouses).

Conventions

The half-year convention treats all property placed in service (or disposed of) during the year as if it were placed in service at the midpoint of the year. The mid-quarter convention must be used if more than 40% of the total depreciable basis of all property placed in service during the year is placed in service in the last quarter. Real property uses the mid-month convention.

Section 179 and Bonus Depreciation

In addition to regular MACRS deductions, businesses may be able to immediately expense qualifying assets under Section 179 (up to the annual limit) or claim bonus depreciation on eligible property. These provisions can significantly accelerate the tax benefits of asset purchases. Consult IRS Publication 946 and your tax professional for current limits and eligibility rules.