MACRS Straight-Line Depreciation: A Simple Worked Example

MACRS straight-line depreciation is an elective tax method that spreads an asset’s tax basis evenly over its MACRS recovery period and ignores salvage value. Under the half-year convention, an $18,000 five-year asset gets $1,800 in year one, $3,600 in each of years two through five, and the final $1,800 in year six.

The method is useful to study because “straight line” can describe several different calculations. Choosing straight line for tax purposes does not automatically make the tax schedule equal to the financial-reporting schedule.

What is the MACRS optional straight-line method?

The Modified Accelerated Cost Recovery System (MACRS) is the federal tax depreciation system, and it allows more than one method. Instead of the usual declining-balance method (a method that front-loads larger deductions into the early years), a taxpayer can elect straight line over the General Depreciation System (GDS) recovery period. This is called the optional or elective straight-line method.

Two rules matter here. First, the election covers a whole property class for the year. If you elect straight line for five-year property, it applies to all five-year property you place in service that year. Second, once you make the election, you cannot change it. You make it by entering “S/L” in column (f) of Part III of Form 4562. Generally, make the election on the return for the year the property is placed in service, by the return’s due date including extensions. A separate 150% declining-balance election also exists, but this article focuses on straight line.

The election changes how the deduction is spread across time. It does not replace the tax recovery period with management’s estimated useful life, and it does not introduce a deduction for expected salvage value. The applicable convention still determines the portion of the first and disposition years allowed.

The IRS discussion of depreciation-method elections in Publication 946 distinguishes straight line over GDS periods from the Alternative Depreciation System (ADS). ADS also uses straight line but may use different recovery periods. “Optional straight line” should not be used as a synonym for ADS.

How do you calculate MACRS straight-line depreciation?

Hypothetical example. Harbor Graphics places $18,000 of equipment in service. Assume it qualifies as five-year GDS property, the company elects straight line for all five-year property it places in service that year, and the half-year convention applies. Assume a full tax year, 100% business use, no section 179 deduction, no bonus depreciation, no other basis adjustments, and continued use through full recovery.

A quick real-world note: for qualifying property acquired and placed in service after January 19, 2025, 100% bonus depreciation applies automatically unless the taxpayer elects out for that class of property. If 100% bonus depreciation is claimed, no basis is left for a straight-line schedule. That’s why this example assumes no bonus depreciation, so you can see the straight-line pattern clearly.

No salvage value is subtracted. If the equipment might sell for $2,000 at the end, that estimate does not change this tax schedule. It could affect a separate book-depreciation calculation, depending on the book assumptions.

The six rows do not create a six-year recovery period. One-half + four + one-half equals five years. The convention spreads those five years across six tax returns. The final half-year deduction completes recovery; it is not an additional bonus.

What are the IRS straight-line percentages for five-year property?

If you prefer the IRS percentage table, the straight-line, half-year rates for five-year property are 10%, 20%, 20%, 20%, 20%, and 10%. Multiply each rate by the $18,000 basis and you get the same schedule: $1,800, $3,600, $3,600, $3,600, $3,600, and $1,800. You’ll find these rates in the straight-line tables in Appendix A of IRS Publication 946.

What if the asset is sold before recovery ends?

Under the half-year convention, the year you dispose of the asset gets half of a full year’s deduction. Suppose Harbor sells the equipment during year three. Its deductions are $1,800 in year one, $3,600 in year two, and $1,800 in year three (half of $3,600). Total depreciation is $7,200, so the adjusted tax basis at the sale date is $18,000 minus $7,200, or $10,800. You compare that adjusted basis with the sale price to find the tax gain or loss.

How does MACRS straight line compare with accelerated MACRS?

Now keep every assumption the same but compare the usual 200% declining-balance half-year table for five-year property. Holding basis, recovery period, and convention constant isolates the method’s timing effect.

By the end of year two, accelerated MACRS has deducted $9,360 compared with $5,400 under optional straight line. The $3,960 difference is earlier cost recovery, not a larger total cost. Later deductions under straight line are correspondingly larger.

For the percentages behind the accelerated column, see our MACRS depreciation guide with tables. Which tax method is better depends on the taxpayer’s own facts, such as expected income in future years. This comparison explains the arithmetic. It isn’t a recommendation to make or skip the election.

Is the straight-line election the same as the table’s switch to straight line?

An election to use straight line starts the schedule that way. A standard declining-balance MACRS schedule instead begins with accelerated deductions and switches to straight line when straight line yields an equal or greater deduction for the remaining recovery period. IRS percentage tables already include that switch.

Do not restart the asset’s original recovery period at the switch. The remaining unrecovered basis must be allocated over the remaining period. Do not add a new optional straight-line deduction on top of a table deduction either; those are alternative ways of calculating the same cost recovery.

Common MACRS straight-line depreciation mistakes

A frequent mistake is borrowing the book formula unchanged. If book cost is $18,000, estimated salvage is $2,000, and estimated useful life is eight years, full-year book straight-line depreciation is $2,000. The tax example above still uses $18,000 ÷ 5 before applying its convention. See tax vs book depreciation for a complete reconciliation.

Exam tip: when a problem gives you a salvage value and a useful life, first check whether it’s asking for tax or book depreciation. For tax, salvage drops out and the MACRS recovery period controls. And because the tax and book amounts differ, the asset’s tax basis and book carrying amount differ too. That gap is a temporary difference, and it creates deferred taxes in the financial statements.

Another mistake is giving a full-year deduction in year one merely because the equipment was purchased early. Under the stated half-year assumption, the convention controls. But don’t apply half-year treatment to every real-world purchase. The mid-quarter convention applies when the depreciable basis of eligible MACRS property placed in service in the last three months of the tax year exceeds 40% of the depreciable basis of all eligible MACRS property placed in service during that year. For this test, exclude property subject to the mid-month convention, property depreciated outside MACRS, and property placed in service and disposed of in the same tax year. Use basis after reductions for section 179 deductions and personal use, and before any reduction for bonus depreciation.

The mid-month convention applies to residential rental property, nonresidential real property, and railroad grading or tunnel bores.

The IRS Form 4562 instructions explain the method and convention fields. Use the convention given in your course or exam problem. Every example in this article uses the half-year convention.

Interactive MACRS straight-line depreciation practice

Test your understanding of the MACRS recovery period, the treatment of salvage value, and first-year depreciation under the half-year convention. Then try the worked questions below.

Practice questions with explained answers

1. Eligible five-year property has a $28,000 basis. Under optional straight line and the half-year convention, what is year-one depreciation?

Answer: $2,800. A full year is $28,000 ÷ 5 = $5,600; one-half is $2,800.

2. What is the year-two deduction for that property, assuming no changes?

Answer: $5,600. Year two receives a full-year deduction. Do not halve each year or divide the remaining basis by the original five years.

3. The same asset has a $3,000 expected resale value. What is total tax depreciation over the completed schedule?

Answer: $28,000, assuming the stated facts and no early sale. MACRS ignores salvage value, and the schedule recovers the full depreciable tax basis.

Frequently asked questions

Does MACRS straight-line depreciation always equal book straight line?

No. Both use a straight-line pattern, but tax and book can use different lives, salvage assumptions, and first-year conventions.

Is the last deduction always exactly half of a full-year amount?

In this completed half-year example, yes. Early disposal, other conventions, short tax years, and basis adjustments can change the calculation.

Can I use the accelerated table and call it optional straight line?

No. The table’s later switch does not make the entire schedule a straight-line election. Select a table consistent with the actual method and convention.

Can I elect MACRS straight line for just one asset?

No. The election applies to all property in the same class that you place in service during the tax year. If you elect straight line for one five-year asset, all five-year property placed in service that year uses straight line. Once you make the election, you can’t change it.

How do you make the MACRS straight-line election?

Enter “S/L” in column (f), the method column, of Part III of Form 4562 for the year the property is placed in service. Generally, make the election by the due date of that year’s return, including extensions.

What happens if the asset is sold before recovery ends?

Under the half-year convention, you deduct half of the full-year amount in the year of the sale. In the $18,000 example, a sale in year three gives a year-three deduction of $1,800, total depreciation of $7,200, and an adjusted basis of $10,800.

Does bonus depreciation replace MACRS straight line?

It can. For qualifying property acquired and placed in service after January 19, 2025, 100% bonus depreciation applies unless the taxpayer elects out for that class of property. With 100% bonus, no basis is left to depreciate. A taxpayer who elects out of bonus depreciation and separately elects straight-line depreciation applies straight line to the remaining depreciable basis after any section 179 deduction and other applicable basis adjustments.

Sources and lesson context

This original guide supports the optional-method discussion in Wiley Intermediate Accounting, Appendix 10A. The linked IRS publications verify the tax mechanics. Examples and practice questions are hypothetical and intentionally exclude special deductions and advanced election planning.

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