MACRS Depreciation: A Simple Guide with Tables and a Worked Example

MACRS (Modified Accelerated Cost Recovery System) is the tax depreciation system used for most U.S. business property placed in service after 1986. To use it, identify the asset’s recovery period, method, and convention, then multiply its unadjusted depreciable basis by the applicable IRS table percentage. This basis reflects any section 179 and bonus depreciation deductions. Salvage value is ignored. For five-year property using 200% declining balance and the half-year convention, the first-year table rate is 20% of that remaining basis.

Getting the table right matters more than complicated arithmetic. Choosing the wrong class or applying a percentage to the wrong amount can change every deduction in your schedule. This guide walks you through recovery periods, the IRS percentage tables, the half-year convention, a full worked example, and practice questions. If you’re studying Appendix 10A in Wiley’s Intermediate Accounting, it lines up with that chapter too.

What is MACRS depreciation?

MACRS generally applies to depreciable property placed in service after 1986. It followed the Accelerated Cost Recovery System (ACRS), an earlier tax system. “Placed in service” means ready and available for its intended use; buying an asset and beginning its depreciation are not necessarily the same event.

The system’s General Depreciation System (GDS) provides the recovery periods used here. A recovery period is the period prescribed for tax deductions, not a prediction of how long the asset will physically last. Tax depreciation also ignores salvage value, which is the amount you expect to recover when the asset’s service ends.

Financial-reporting depreciation answers a different question. See tax vs book depreciation for the useful-life, method, and salvage-value differences.

What are the MACRS depreciation recovery periods and methods?

Identify the property class before selecting a percentage. The following is a study map for ordinary GDS treatment; specific property rules and elections can change the result. Do not classify equipment solely from its name or expected useful life.

Under 200% declining balance, the starting annual rate is twice the straight-line rate. For five-year property, that is 2 ÷ 5 = 40%. The 150% method uses 1.5 times the straight-line rate. Declining-balance schedules switch to straight line when that produces an equal or larger deduction; IRS percentage tables already incorporate the switch.

The IRS instructions for Form 4562 explain recovery periods, methods, and conventions. Land itself is not depreciable. The optional MACRS straight-line method provides another approach for eligible property.

MACRS percentage table: 3-, 5-, and 7-year property (half-year convention)

These are the IRS Table A-1 rates for the three classes students use most. Apply each rate to the asset’s unadjusted basis. That means its cost (plus costs to get it ready for use) minus any section 179 or bonus depreciation, before any MACRS depreciation. Each column adds up to 100%.

For 10-, 15-, and 20-year property, use the full Table A-1 in IRS Publication 946.

How does the MACRS half-year convention work?

A convention determines how much of the first and last year counts for depreciation. Under the half-year convention, property is treated as entering or leaving service at the midpoint of the tax year. A five-year recovery period therefore normally spans six tax years when the asset is held through full recovery.

The appendix directs students to use this convention for its homework. Actual tax rules also include mid-quarter and mid-month conventions. Residential rental and nonresidential real property generally use mid-month; some personal-property purchases trigger mid-quarter. The worked example explicitly assumes half-year treatment applies.

Do not halve the first-year IRS table percentage again. For five-year property, the 20% first-year rate already reflects 40% × one-half.

When does the mid-quarter convention apply?

The mid-quarter convention replaces the half-year convention when you place too much property in service late in the year. If more than 40% of the depreciable basis of the MACRS property included in the test was placed in service in the last three months of the tax year, the mid-quarter convention applies to that year’s property subject to the test. Use the business-use portion of basis after subtracting any section 179 deduction and before subtracting any bonus depreciation.

Residential rental and nonresidential real property don’t count toward the test. Neither does property you placed in service and disposed of in the same year. Under mid-quarter, each asset is treated as placed in service at the midpoint of its quarter, so you use different IRS tables (Tables A-2 through A-5 in Publication 946).

How do you calculate MACRS depreciation? A worked example

Hypothetical example. Oak Studio places $24,000 of business computers in service. Assume five-year GDS property, 200% declining balance, the half-year convention, a full tax year, 100% business use, no section 179 deduction, and no bonus depreciation. The asset is held through the schedule; there are no other basis adjustments.

Use this five-step process: identify the $24,000 basis; confirm the five-year class; select the 200% declining-balance half-year table; locate each recovery-year rate; multiply each rate by the same $24,000 unadjusted basis.

Why is year two 32%? The 40% declining-balance rate applies to the remaining 80% of basis: 40% × 80% = 32% of original basis. Thus $24,000 × 32% and $19,200 × 40% both give $7,680. Mixing those approaches, such as $19,200 × 32% = $6,144, understates the deduction because it applies the year-one reduction twice.

The rates are from IRS Publication 946, Appendix A, Table A-1. A zero ending basis means the depreciable cost has been recovered for tax purposes; it does not mean the computers have no market value.

Common MACRS depreciation mistakes

Keep three distinctions visible in your working paper: original table basis versus remaining adjusted basis; recovery year versus calendar year; and the timing convention versus the depreciation method. A year-three table rate describes the third recovery year, regardless of the calendar year printed on the return.

Do not subtract expected resale proceeds, use management’s useful-life estimate as the tax class, or apply an ordinary full-year percentage unchanged when the asset is disposed of early. A disposition can require a convention adjustment. The main schedule leaves out early disposal and special deductions so it stays clear. The next two sections cover both.

Exam tip: MACRS shows up on the CPA REG exam and on EA Part 2. Before you touch a table, underline three things in the question: the recovery period, the convention, and whether section 179 or bonus depreciation is excluded. Skipping any one of them is the fastest way to pick a wrong answer choice.

How do bonus depreciation and section 179 change MACRS depreciation?

Section 179 and bonus depreciation are first-year write-offs that come before the MACRS tables. The order is always the same: take any section 179 deduction first, then bonus depreciation on the basis that’s left, then regular MACRS on whatever remains.

Section 179 lets you expense the cost of qualifying property in the year you place it in service, up to a dollar limit. For tax years beginning in 2025, that limit is $2,500,000. It shrinks dollar for dollar once the qualifying property you place in service during the year exceeds $4,000,000. Both amounts are indexed for inflation after 2025. For tax years beginning in 2026, the maximum deduction is $2,560,000, and the phaseout begins when qualifying property placed in service exceeds $4,090,000. The section 179 deduction is also limited to taxable income from the active conduct of trades or businesses, with amounts disallowed by this income limit generally carried forward.

Bonus depreciation (the IRS calls it the special depreciation allowance) has no dollar cap. The One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, made 100% bonus depreciation permanent for qualified property acquired and placed in service after January 19, 2025. It applies automatically unless you elect out.

Here’s what that means for Oak Studio. Say it bought the $24,000 of computers and placed them in service in 2026, and it did nothing else. Then 100% bonus depreciation would deduct the full $24,000 in year one. The six-year schedule above applies only if Oak Studio elects out of bonus depreciation for its 5-year property and doesn’t elect section 179. That’s why exam problems and textbook homework tell you to ignore both.

What happens to MACRS depreciation in the year you sell?

Under the half-year convention, an early disposition generally allows half of a full year’s depreciation. If the applicable table percentage represents a full year, multiply it by one-half. The final recovery-year table percentage already reflects the remaining half-year, so use that percentage without halving it again. Depreciation ends when the depreciable basis has been fully recovered.

Say Oak Studio sells the computers during recovery year 3. Year 3 depreciation is $24,000 × 19.20% × 50% = $2,304, not $4,608.

Total depreciation taken is $4,800 + $7,680 + $2,304 = $14,784, so the adjusted basis at the sale is $24,000 minus $14,784, or $9,216. If Oak Studio sells the computers for $10,000, it has a $784 gain.

Because the computers are depreciable personal property, section 1245 treats that gain as ordinary income, up to the depreciation already taken. This is called depreciation recapture, which means taxing part of a gain as ordinary income because you already deducted it as depreciation.

For the book side of a sale, see our guide to the asset disposal journal entry.

Interactive MACRS Depreciation Practice

Test your understanding of MACRS depreciation with six multiple-choice questions on General Depreciation System (GDS) property classes and methods, depreciable tax basis, the half-year convention, and salvage value.

Practice questions with explained answers

1. Five-year property has a $36,000 basis. What is year-one depreciation?

Answer: $7,200 under the stated 200% declining-balance half-year assumptions: $36,000 × 20%. The half-year adjustment is already in the rate.

2. The same property has a $4,000 expected salvage value. Does that reduce the MACRS basis?

Answer: No. MACRS ignores salvage value. The example’s basis remains $36,000, assuming no other adjustments.

3. What is year-two depreciation on that property?

Answer: $11,520: $36,000 × 32%. Do not apply 32% to the $28,800 remaining after year one.

Key takeaways

• MACRS is the tax depreciation system for most U.S. business property placed in service after 1986.
• Pick the recovery period from the property class, not from management’s useful-life estimate.
• Multiply the same unadjusted basis by each year’s IRS table percentage. Never apply a table rate to the remaining basis.
• MACRS ignores salvage value.
• The half-year convention is already built into the first-year rate, so don’t halve it again.
• Section 179 and bonus depreciation come first. 100% bonus depreciation applies automatically to qualified property acquired after January 19, 2025, unless you elect out.

Frequently asked questions

Why does five-year MACRS depreciation take six tax years?

Two half years plus four full years equal five years of recovery. The sixth tax year finishes the schedule.

Does MACRS always use an accelerated method?

No. Certain real property uses straight line, and an eligible taxpayer can elect straight line for other property. MACRS is the system, not one single formula.

Is bonus depreciation included in this table?

No. Bonus depreciation is a separate first-year allowance taken before regular MACRS, and it reduces the basis left for the table percentages. The examples here expressly exclude it. For qualified property acquired and placed in service after January 19, 2025, bonus depreciation is 100% unless you elect out.

Can I use MACRS depreciation for my financial statements?

Usually not. MACRS is a tax system. U.S. GAAP depreciation spreads cost minus salvage value over the asset’s useful life, so book and tax depreciation often differ. That difference is a temporary difference, which is why companies record deferred taxes.

What are the MACRS rates for 7-year property?

Under the half-year convention, IRS Table A-1 lists 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.92%, 8.93%, and 4.46% for recovery years 1 through 8. Office furniture and fixtures are common 7-year examples.

Does bonus depreciation apply automatically?

Yes, for qualified property, unless you elect out. Qualified property acquired and placed in service after January 19, 2025, gets 100% bonus depreciation. You can elect out for an entire class of property placed in service that year, such as all 5-year property, and then use the regular MACRS tables.

Sources and lesson context

This original guide supports Wiley Intermediate Accounting, Appendix 10A: Income Tax Depreciation. All examples and practice questions were created for this guide. Consult the linked IRS materials for applicable-year rules and use the assumptions supplied in your course problem.

Last reviewed: November 13, 2026, against IRS Publication 946 (for 2025 returns).

About the author: Mansour Farhat teaches accounting and tax at Farhat Lectures, where he creates exam prep for CPA, CMA, and EA candidates and courses for accounting students.

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