Depreciation Calculator: MACRS, Straight-Line & Section 179 Explained

The Three Depreciation Methods: When Each Applies

The IRS does not give businesses a free choice of depreciation method. The applicable method is determined by the type of asset, when it was placed in service, and elections made by the taxpayer. Understanding the hierarchy prevents costly errors on Form 4562.

IRS Publication 946 ("How To Depreciate Property") is the authoritative source. It runs over 100 pages, but the practical rules for most small business assets fit within a much simpler framework. The three methods you'll encounter most often are:

1. Section 179 expensing — immediate deduction in the year of purchase, subject to dollar caps and income limits
2. Bonus depreciation (Section 168(k)) — first-year deduction of 100% of qualified property cost, applied after Section 179
3. MACRS regular depreciation — IRS-prescribed recovery periods with accelerated declining-balance rates, applied to whatever cost basis remains after Section 179 and bonus

The IRS applies deductions in this exact sequence: Section 179 first, then bonus depreciation, then regular MACRS. You can mix and match — elect Section 179 on some assets, bonus on others, and take regular MACRS on the rest. But you cannot take Section 179 and bonus depreciation on the same dollar of cost.

Section 179: Immediate Expensing Rules for 2026

Section 179 of the Internal Revenue Code lets businesses deduct the full purchase price of qualifying assets in the year they're placed in service, rather than depreciating them over several years. Per IRS Revenue Procedure 2025-45, the 2026 limits are:

• Maximum deduction: $2,560,000 (up from $1,220,000 in 2024)
• Phase-out threshold: Begins when total qualifying property placed in service exceeds $4,090,000
• Phase-out mechanics: Dollar-for-dollar reduction — if you placed $4,590,000 in qualifying property in service, your maximum Section 179 is $1,560,000
• Income limitation: Section 179 cannot create a net loss — the deduction is limited to the business's taxable income from active trades or businesses
• SUV limitation: Section 179 on SUVs over 6,000 lbs GVWR is capped at $32,000 (2026), even if the total vehicle cost is higher

What Qualifies for Section 179?

Qualifying Section 179 property includes:

Bonus Depreciation: 100% First-Year Expensing in 2026

Bonus depreciation under IRC §168(k) was scheduled to phase down after 2022 (80% in 2023, 60% in 2024, 40% in 2025) following the Tax Cuts and Jobs Act's original timeline. However, the One Big Beautiful Bill Act of 2025 restored bonus depreciation to 100% permanently for property placed in service after January 19, 2025.

Key differences between Section 179 and bonus depreciation:

The ability to create a tax loss with bonus depreciation is powerful — but it triggers the excess business loss rules under IRC §461(l). For 2026, individual taxpayers can deduct no more than $313,000 (single) or $626,000 (married) in excess business losses. Losses beyond those amounts convert to a Net Operating Loss (NOL) carryforward.

MACRS Depreciation: Recovery Periods and Rates

When you don't fully expense property under Section 179 or bonus depreciation, you depreciate the remaining basis under the Modified Accelerated Cost Recovery System (MACRS). MACRS uses the General Depreciation System (GDS) for most property, with an Alternative Depreciation System (ADS) required in certain circumstances (like property used outside the U.S., or property financed with tax-exempt bonds).

MACRS GDS uses the 200% declining balance method switching to straight-line for personal property, and straight-line for real property. The IRS publishes percentage tables in Appendix A of Publication 946 — you don't need to calculate the rates yourself, just look them up.

MACRS Recovery Periods for Common Assets

MACRS Depreciation Rate Tables (5-Year and 7-Year Property)

The following are the IRS Publication 946 MACRS percentage tables for the most common recovery periods under the half-year convention. Apply these percentages to the original cost basis (not reduced for salvage value — MACRS assumes zero salvage value).

Worked Examples: Calculating Depreciation Three Ways

Example 1: $45,000 CNC Machine (7-Year Property)

A manufacturing business buys a $45,000 CNC machine in April 2026. The machine is 7-year MACRS property. The business owner has three options:

Example 2: $280,000 Rental Property Building (27.5-Year)

A landlord buys a rental property for $320,000, allocates $40,000 to land (non-depreciable) and $280,000 to the building. The building is residential rental property, so it depreciates under straight-line MACRS over 27.5 years with the mid-month convention.

This is a critical point that trips up many rental property owners: you cannot use Section 179 or bonus depreciation on the residential building itself. You can, however, use bonus depreciation on qualified improvement property (interior renovations) and separate personal property within the building. A cost segregation study can identify components of a building that qualify for shorter recovery periods and bonus depreciation — the average cost segregation study on a $2M+ commercial property saves $150,000–$350,000 in present value according to the American Society of Cost Segregation Professionals (ASCSP). See our Rental Property Tax Deductions guide for depreciation strategies specific to landlords.

Example 3: $8,500 Business Laptop (5-Year Property)

For small-dollar assets, Section 179 is almost always the better choice — the administrative simplicity and time-value of the immediate deduction far outweigh any reason to spread it over 6 tax years.

Form 4562: Where Depreciation Gets Reported

All depreciation, amortization, and Section 179 deductions are reported on IRS Form 4562 (Depreciation and Amortization). The form must be filed in any year you claim a new Section 179 deduction, bonus depreciation, or depreciation on listed property (vehicles, computers, entertainment). It's also required in the year you place any new depreciable asset in service.

Key Form 4562 sections:

• Part I (Lines 1–12): Section 179 election — list assets, elect dollar amounts, apply income limitation
• Part II (Lines 14–15): Special depreciation allowance (bonus depreciation) for new and used property
• Part III (Lines 17–19): MACRS regular depreciation for assets placed in service in 2026
• Part IV (Line 21): Summary of all depreciation from all parts
• Part V (Lines 23–36): Listed property (vehicles, computers) — requires additional documentation
• Part VI (Lines 42–44): Amortization of intangibles (startup costs, organization costs, patents, etc.)

The total depreciation from Form 4562 flows to Schedule C (Line 13), Schedule E (Line 20), or Schedule F (Line 14) depending on the nature of the business. For business expense deductions beyond depreciation, see our Business Expense Deductions guide.

Depreciation Recapture: The Tax You Pay When You Sell

Depreciation deductions reduce your tax basis in an asset. When you sell the asset, the IRS "recaptures" those deductions — meaning you pay tax on the gain attributable to depreciation at potentially higher rates than long-term capital gains. This surprises many business owners who expected to pay only 15% or 20% on their gain.

There are two types of depreciation recapture:

• Section 1245 recapture (personal property): All depreciation taken on personal property (machinery, equipment, computers) is recaptured as ordinary income, regardless of the capital gains rate. If you bought equipment for $50,000, took $30,000 in depreciation, and sell it for $40,000, the $20,000 gain above adjusted basis is ordinary income; only gains above original cost are capital gains.
• Section 1250 recapture (real property): For straight-line depreciated real property, "unrecaptured Section 1250 gain" is taxed at a maximum 25% rate — higher than the typical 15% or 20% long-term capital gains rate. The depreciation itself (not any appreciation above original cost) drives this recapture.

This interaction with depreciation recapture means that accelerating all depreciation through Section 179 or bonus may not always be optimal. If you expect to sell the asset at a gain within a few years, spreading depreciation over MACRS may result in lower total tax because regular MACRS depreciation beyond ADS amounts triggers less recapture under §1250.

Listed Property Rules: Extra Restrictions for Vehicles and Computers

"Listed property" under IRC §280F gets special scrutiny because it's susceptible to personal use. In 2026, listed property includes passenger automobiles, other transportation vehicles, computers used away from a regular business establishment, and property used for entertainment or recreation.

For passenger automobiles, the IRS imposes luxury auto limits that cap annual depreciation regardless of actual cost. Per Rev. Proc. 2026-13, the 2026 limits for passenger automobiles (under 6,000 lb GVWR) are:

• Year 1 (with bonus depreciation claimed): $12,400
• Year 1 (no bonus depreciation): $12,400
• Year 2: $19,800
• Year 3: $11,900
• Year 4 and beyond: $7,160 per year

Vehicles over 6,000 lbs GVWR (heavy SUVs, trucks, vans) are not subject to the luxury auto caps — that's why the heavy SUV is a popular business purchase. But Section 179 for SUVs over 6,000 lbs is still limited to $32,000 in 2026 under the "SUV cap" in §179(b)(5).

Strategic Depreciation Planning: When to Accelerate vs. Spread

The conventional wisdom is always to accelerate depreciation — take Section 179 and bonus immediately, maximize the time value of money. That's generally correct, but the right strategy depends on your specific situation:

Accelerate when: You're in a high tax bracket now and expect to be in a lower bracket in future years; you need to offset a particularly large income year; you're certain you won't sell the asset soon; or you have positive taxable income that the deduction can reduce (critical for Section 179, which cannot create a loss).

Spread depreciation when: Your business is early-stage with net operating losses (additional deductions don't help in loss years); you expect income to grow substantially (a deduction in year 5 at 37% is worth more than in year 1 at 22%); or you plan to sell the asset and want to manage recapture exposure.

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