MACRS Depreciation: Recovery Periods, Conventions, and Methods for Business Assets

By Yarik Yarosh, CPA ·September 5, 2026 ·Updated September 23, 2026 ·9 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

The Modified Accelerated Cost Recovery System (MACRS) is the default depreciation method for business assets placed in service after 1986. While Section 179 and bonus depreciation allow immediate expensing of many assets, MACRS governs the recovery of costs when those provisions don’t fully apply (because of income limitations for Section 179, lower bonus rates on property acquired before January 20, 2025, or assets not eligible for immediate expensing). Under MACRS, each asset is assigned a recovery period (3, 5, 7, 10, 15, 20, 25, 27.5, or 39 years) based on its class life. Most business equipment falls into the 5-year or 7-year class. The depreciation is “accelerated” because more of the cost is recovered in the early years (using the 200% or 150% declining balance method) compared to straight-line depreciation.

✓Key takeaway

MACRS recovery periods for common business assets:

Asset	Recovery Period	Method
Computers, peripherals	5 years	200% DB
Office machinery (copiers, calculators)	5 years	200% DB
Automobiles, trucks (under 13,000 lbs)	5 years	200% DB
Heavy trucks (over 13,000 lbs)	5 years	200% DB
Construction equipment (excavators, loaders)	5 years	200% DB
Office furniture and fixtures	7 years	200% DB
Agricultural machinery	7 years	200% DB
Manufacturing equipment	7 years	200% DB
Tools and shop equipment	7 years	200% DB
Land improvements (parking lots, landscaping, fences)	15 years	150% DB
Qualified restaurant property	15 years	150% DB
Residential rental property (building)	27.5 years	Straight-line
Nonresidential real property (commercial building)	39 years	Straight-line
Qualified improvement property (interior improvements)	15 years	Straight-line

Three depreciation layers (choose the best combination):

Layer	2025 Rules	When to Use
Section 179	Expense up to $2,500,000; phases out at $4,000,000	When you want to choose which specific assets to expense (targeted)
Bonus depreciation	100% for property acquired after January 19, 2025 (OBBBA, no scheduled end date)	When you want to expense everything automatically
MACRS	Depreciate over recovery period	When 179/bonus don’t apply or when you WANT to spread the deduction

Why would you choose MACRS over immediate expensing?

Income is too low this year (want deductions in future higher-income years)
NOL would be created (Section 179 can’t create an NOL; bonus can but you might not want one)
State doesn’t conform to federal bonus depreciation (California, for example; check your state)
Asset is real property (39-year or 27.5-year, not eligible for 179 or bonus in most cases)
Listed property with under 50% business use (must use ADS straight-line)

MACRS conventions:

Convention	When It Applies	How It Works
Half-year	Default for personal property	Treat asset as placed in service July 1 (half-year depreciation in Year 1 and final year)
Mid-quarter	When 40%+ of personal property placed in service in Q4	Each quarter’s assets treated as placed in service at mid-quarter
Mid-month	Real property (buildings)	Treat as placed in service on the 15th of the month

The mid-quarter trap: If more than 40% of the year’s depreciable personal property is placed in service in Q4 (October-December), ALL assets placed in service that year switch from the half-year convention to the mid-quarter convention. Q4 assets get only 1.5 months of depreciation instead of 6 months. Q1-Q3 assets get MORE depreciation. Overall, the mid-quarter convention usually produces LESS total Year 1 depreciation.

Planning: if a large Q4 equipment purchase would trigger mid-quarter, consider Section 179 on that purchase; amounts expensed under Section 179 are left out of the 40% test, but bonus depreciation is not, so bonus alone won’t keep the remaining assets on half-year.

How does MACRS depreciation work in practice?

Hypothetical example

Round numbers. For current guidance, see IRS Publication 946 (How To Depreciate Property). An electrical contractor. Sole proprietor. Buys $120,000 in equipment without using Section 179 or bonus depreciation (to illustrate MACRS).

Assets purchased (all placed in service March 15):

Asset	Cost	MACRS Class	Convention
Work van	$45,000	5-year	Half-year
Diagnostic equipment	$25,000	5-year	Half-year
Office furniture	$10,000	7-year	Half-year
Tools and shop equipment	$20,000	7-year	Half-year
Parking lot resurfacing	$20,000	15-year	Half-year
Total	$120,000

MACRS depreciation schedule (200% declining balance, half-year):

5-year property ($70,000 total: van + diagnostic):

Year	Rate	Depreciation
1	20.00%	$14,000
2	32.00%	$22,400
3	19.20%	$13,440
4	11.52%	$8,064
5	11.52%	$8,064
6	5.76%	$4,032
Total	100%	$70,000

Note: 5-year property takes 6 tax years to fully depreciate (because of the half-year convention, you get half a year in Year 1 and the remaining half in Year 6).

7-year property ($30,000 total: furniture + tools):

Year	Rate	Depreciation
1	14.29%	$4,287
2	24.49%	$7,347
3	17.49%	$5,247
4	12.49%	$3,747
5	8.93%	$2,679
6	8.92%	$2,676
7	8.93%	$2,679
8	4.46%	$1,338
Total	100%	$30,000

15-year property ($20,000: parking lot):

Year	Rate	Depreciation
1	5.00%	$1,000
2	9.50%	$1,900
3	8.55%	$1,710
…	…	…
16	2.95%	$590
Total	100%	$20,000

Total Year 1 MACRS depreciation: $14,000 (5-yr) + $4,287 (7-yr) + $1,000 (15-yr) = $19,287

Comparison: MACRS vs. Section 179 vs. bonus depreciation:

Method	Year 1 Deduction	Tax Savings (38%)
MACRS only	$19,287	$7,329
Section 179 (limited to net income)	Up to $120,000	Up to $45,600
Bonus depreciation (100%)	$120,000	$45,600

For most small businesses with positive income, bonus depreciation (or Section 179) is clearly better in Year 1. But the comparison reverses if:

The business has low income (Section 179 limited to taxable income)
The state doesn’t allow bonus depreciation (must use MACRS for state taxes)
The owner is in a low bracket now but expects higher income later (defer the deduction)

State conformity issue: California does not conform to federal bonus depreciation or the federal Section 179 limits (2025 FTB 3885A instructions, personal income tax filers); check other states individually:

State	Section 179 Limit	Bonus Depreciation
California	$25,000	Not allowed

In California, a $120,000 equipment purchase generates:

Federal: $120,000 deduction (bonus depreciation)
State: $25,000 Section 179 + MACRS on the remaining $95,000

This creates a federal/state depreciation difference that must be tracked throughout the life of the assets.

Disposal of a MACRS asset before fully depreciated: If the work van is sold in Year 3 for $20,000:

Accumulated depreciation through Year 3 (5-year MACRS, half-year convention): Year 1: $45,000 x 20% = $9,000 Year 2: $45,000 x 32% = $14,400 Year 3 (disposal year, half-year): $45,000 x 19.20% / 2 = $4,320 (half-year in disposal year for half-year convention) Total depreciation: $27,720 Remaining basis: $45,000 - $27,720 = $17,280

Sale price: $20,000 Basis: $17,280 Gain: $2,720 (ordinary income, IRC 1245 depreciation recapture)

If the van were sold for $10,000: Gain/loss: $10,000 - $17,280 = ($7,280) ordinary loss (deductible)

Illustrative numbers only, not a real client and not advice for your facts.

Section 179 or bonus for an electrical contractor?

If the business is profitable, either one can expense the diagnostic gear and tools in year one, and the van too if it’s rated over 6,000 lb. Bonus is automatic at 100% for property acquired after January 19, 2025. Section 179 is optional, lets you pick the assets and amounts, and can’t exceed your taxable income from active businesses, wages included.

Both work on used equipment bought from an unrelated seller, as long as you didn’t use it before. The work van needs more than 50% business use for either one. The Section 179 limit is $2,500,000 for 2025 and $2,560,000 for 2026, far above a $120,000 purchase. The bigger difference shows up on a California return: California doesn’t allow bonus for personal income tax filers and caps Section 179 at $25,000, with a $200,000 threshold (2025 FTB 3885A instructions).

When does regular MACRS still apply after bonus?

One common case is property acquired before January 20, 2025. That property stays on the old phase-down, at 40% bonus if placed in service in 2025 and 20% in 2026, with regular MACRS on the rest. Property acquired after January 19, 2025 gets 100% bonus, and current law has no scheduled phase-down for it.

The order is Section 179 first, then bonus, then regular MACRS on what’s left. Say a $45,000 work van over 6,000 lb, used more than 50% for business, was bought under a 2024 contract and placed in service in 2025. It gets $18,000 of bonus, and the remaining $27,000 takes the 5-year rate of 20% in year one, or $5,400. Regular MACRS also covers anything outside bonus, like buildings, and any class you elect out of.

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Cite this page

Yarik Yarosh, CPA. "MACRS Depreciation: Recovery Periods, Conventions, and Methods for Business Assets." Blue Cloud CPA, September 5, 2026, updated September 23, 2026. https://bluecloudcpa.com/guides/small-business-depreciation-macrs-recovery-periods

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.

MACRS Depreciation: Recovery Periods, Conventions, and Methods for Business Assets

How does MACRS depreciation work in practice?

Section 179 or bonus for an electrical contractor?

When does regular MACRS still apply after bonus?

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