Depreciation Methods Compared: MACRS, Straight-Line, ADS, Section 179, and Bonus Depreciation

Depreciation is the process of deducting the cost of a business asset over its useful life. The tax code provides several methods, and choosing the right one can significantly affect when the business gets the deduction and how much cash flow it preserves. IRC 168 establishes the Modified Accelerated Cost Recovery System (MACRS) as the default method for most tangible property placed in service after 1986. MACRS front-loads deductions by using the 200% declining balance method (or 150% for certain property), switching to straight-line when that produces a larger deduction. The Alternative Depreciation System (ADS) uses straight-line depreciation over longer recovery periods and is required in specific situations (listed property used 50% or less for business, tax-exempt use property, property used predominantly outside the US, and for earnings & profits calculations). On top of these systematic methods, Section 179 and bonus depreciation under IRC 168(k) allow immediate expensing of the full cost, creating the largest possible first-year deduction.

How do the different methods compare on the same asset?

Section 179 or bonus depreciation for 5-year equipment?

For 5-year equipment acquired under a binding contract after January 19, 2025, both give a 100% first-year write-off, so the real difference is control. Bonus applies automatically unless you elect out, and that election covers all 5-year property you placed in service that year. Section 179 is picked asset by asset, and you can expense just part of an asset’s cost.

Section 179 also has limits that bonus doesn’t. For tax years beginning in 2025 it’s capped at $2,500,000 and starts shrinking once you place more than $4,000,000 of 179 property in service. For 2026 those figures are $2,560,000 and $4,090,000. It can’t exceed your taxable income from active trades or businesses (W-2 wages count), and the excess carries forward. Bonus has no income cap of its own, but for an individual owner a loss it creates can still be limited by the excess business loss rule and the 80% cap on NOL carryforwards.

How do I use regular MACRS instead of expensing equipment?

Skipping Section 179 doesn’t put you on regular MACRS. Qualified property gets bonus depreciation automatically unless you elect out, so to depreciate equipment over its recovery period you have to decline 179 and also elect out of bonus for that whole class of property for the year. That election can be revoked only with IRS consent.

Once you’re there, 5-year property such as computers uses 200% declining balance with a 20% first-year rate under the half-year convention, and 7-year office furniture starts at 14.29%. If more than 40% of the year’s depreciable basis (excluding real property) goes into service in the last three months, the mid-quarter convention applies instead. Whether spreading the deduction pays off is a planning call that turns on your income in later years. Commercial buildings generally don’t get the choice: they’re 39-year straight line with a mid-month convention.

• Business Depreciation Methods Compared: MACRS, Section 179, Bonus Depreciation, and Straight-Line
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This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.