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

By Yarik Yarosh, CPA ·September 5, 2026 ·7 min read

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

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.

✓Key takeaway

Depreciation methods comparison:

Method	Recovery Period	First-Year Deduction (% of cost)	When to Use
Section 179	Year 1 (100%)	100% (up to $2,560,000 limit under OBBBA)	When you want the full deduction immediately and have sufficient taxable income
Bonus Depreciation (100%)	Year 1 (100%)	100% (no dollar limit)	When you want full deduction and taxable income might be zero (can create NOL)
MACRS 200% DB (5-year property)	5 years	20% (first year, half-year convention)	Default method for most equipment
MACRS 200% DB (7-year property)	7 years	14.29%	Office furniture, fixtures, certain machinery
MACRS 150% DB (15-year property)	15 years	5%	Land improvements (parking lots, fencing, landscaping)
MACRS Straight-Line (27.5-year)	27.5 years	3.636% (mid-month convention)	Residential rental property
MACRS Straight-Line (39-year)	39 years	2.564%	Nonresidential real property (commercial buildings)
ADS Straight-Line (various)	Longer than MACRS (e.g., 12 years for 5-year property)	Lower than MACRS	Required for certain property; elected for QBI/farming

MACRS property classes:

Class	Recovery Period	Examples
3-year	3 years	Tractor units, racehorses, qualified rent-to-own property
5-year	5 years	Automobiles, computers, office machinery, appliances, carpet, furniture in rental property
7-year	7 years	Office furniture, fixtures, agricultural machinery, property not assigned to another class
10-year	10 years	Water transportation equipment, single-purpose agricultural structures
15-year	15 years	Land improvements (sidewalks, roads, bridges, fences, landscaping), qualified improvement property
20-year	20 years	Farm buildings, municipal sewers
27.5-year	27.5 years	Residential rental property
39-year	39 years	Nonresidential real property

Section 179 vs. Bonus Depreciation:

Feature	Section 179	Bonus Depreciation
Dollar limit	$2,560,000 (2026+ under OBBBA)	No dollar limit
Phase-out threshold	Begins at $3,210,000 (2025, indexed)	No phase-out
Taxable income limitation	Can’t exceed taxable income (carryforward available)	Can create a net operating loss
Used property eligible?	Yes	Yes (post-TCJA)
Real property eligible?	QIP, roofs, HVAC, fire/security systems	Yes (most depreciable property)
Applies at entity level	Yes (each entity has its own limit)	Yes
Elective?	Yes (taxpayer chooses amount)	Yes (can elect out)

How do the different methods compare on the same asset?

Hypothetical example

Round numbers. A business purchases $100,000 of 5-year equipment. Placed in service July 1 (half-year convention applies for MACRS). Tax bracket: 24%.

Depreciation schedule comparison:

Year	Section 179	Bonus (100%)	MACRS 200% DB	MACRS Straight-Line	ADS Straight-Line (12 years)
1	$100,000	$100,000	$20,000	$10,000	$4,167
2	$0	$0	$32,000	$20,000	$8,333
3	$0	$0	$19,200	$20,000	$8,333
4	$0	$0	$11,520	$20,000	$8,333
5	$0	$0	$11,520	$20,000	$8,333
6	$0	$0	$5,760	$10,000	$8,333
7-12	$0	$0	$0	$0	$8,333/yr
13	$0	$0	$0	$0	$4,167
Total	$100,000	$100,000	$100,000	$100,000	$100,000

Tax savings by year (at 24% bracket):

Year	Section 179	Bonus (100%)	MACRS 200% DB	MACRS SL	ADS SL
Year 1	$24,000	$24,000	$4,800	$2,400	$1,000
Year 2	$0	$0	$7,680	$4,800	$2,000
Year 3	$0	$0	$4,608	$4,800	$2,000
Years 4-5	$0	$0	$5,530	$7,200	$4,000
Years 6-12	$0	$0	$1,382	$2,400	$15,000

Present value of tax savings (at 5% discount rate):

Method	PV of Tax Savings
Section 179 / Bonus	$24,000 (all in Year 1, no discounting)
MACRS 200% DB	~$21,800
MACRS Straight-Line	~$20,200
ADS Straight-Line (12-year)	~$17,500

Section 179 and bonus depreciation provide $6,500 MORE in present-value tax savings than ADS, even though the total nominal deduction is identical ($100,000). The time value of money makes front-loaded deductions more valuable.

When to choose each method:

Situation	Best Method	Why
High taxable income, want maximum Year 1 deduction	Section 179 or bonus	Full deduction immediately
Low or no taxable income (startup or loss year)	Bonus depreciation	Creates NOL (carryforward at 80%); Section 179 limited to taxable income
Want to spread deductions evenly (expecting lower income in future)	MACRS straight-line election	Saves more tax when future rates are higher
Listed property used < 50% for business	ADS (required)	Can’t use MACRS if business use drops below 50%
Need to maximize QBI deduction	ADS election	Reduces taxable income more slowly, keeping QBI higher
State does not conform to bonus/179	State: MACRS; federal: bonus	Many states decouple from federal bonus depreciation

State conformity issues:

State	Section 179	Bonus Depreciation
California	Limited to $25,000	Doesn’t conform (no bonus)
New York	Conforms (with modifications)	Partial conformity
Florida	Conforms	Conforms
Texas	No income tax	No income tax
New Jersey	Limited conformity	Does NOT conform
Illinois	Conforms	Doesn’t conform

In California, a business claiming $100,000 in bonus depreciation on the federal return must add back the entire $100,000 on the California return and instead use MACRS over 5-7 years. This creates a significant book-to-tax (federal-to-state) difference that requires careful tracking.

Mid-quarter convention trap: If more than 40% of all depreciable assets placed in service during the year are placed in service in Q4 (October-December), the mid-quarter convention applies instead of the half-year convention:

Convention	First-Year MACRS (5-year, 200% DB)
Half-year	20% ($20,000 on $100,000)
Mid-quarter Q1	35%
Mid-quarter Q2	25%
Mid-quarter Q3	15%
Mid-quarter Q4	5% ($5,000 on $100,000)

Buying most equipment in Q4 without planning triggers the mid-quarter convention, reducing the first-year MACRS deduction to just 5%. Section 179 and bonus depreciation aren’t affected by the mid-quarter convention.

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

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Cite this page

Yarik Yarosh, CPA. "Depreciation Methods Compared: MACRS, Straight-Line, ADS, Section 179, and Bonus Depreciation." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-depreciation-methods-macrs-straight-line-ads

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