MACRS Explained
The Modified Accelerated Cost Recovery System sets the depreciation method, recovery period, and convention for most business property. Class lives and a few statutory assignments produce the periods. Salvage value is treated as zero. Buildings use statutory 27.5- or 39-year lives.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- MACRS depreciation is determined by three things: method, recovery period, and convention.
- Recovery periods are set by statute and by class lives in Rev. Proc. 87-56, not by your own estimate of useful life.
- Most property uses the General Depreciation System (GDS); some must use the slower Alternative Depreciation System (ADS).
- Residential rental property is 27.5 years and nonresidential real property is 39 years, both straight line with the mid-month convention.
- Property required to use ADS is not eligible for bonus depreciation.
MACRS applies to most tangible property placed in service after 1986. Section 168(a) says the deduction is determined using the applicable depreciation method, the applicable recovery period, and the applicable convention. Salvage value is treated as zero.
Recovery periods come from class lives. Section 168(e) maps class lives to recovery periods — for example, a class life of more than 4 but less than 10 years makes property 5-year property. The class lives themselves are published in Rev. Proc. 87-56, reproduced in Appendix B of IRS Publication 946. Buildings have statutory periods: 27.5 years for residential rental property and 39 years for nonresidential real property.
The default method is 200% declining balance, switching to straight line when that produces a larger allowance. Fifteen- and 20-year property use 150% declining balance. Residential rental property, nonresidential real property, railroad grading and tunnel bore, and qualified improvement property use straight line.
Conventions decide how much of the first and last year counts. The half-year convention is the default. Buildings use mid-month. Mid-quarter replaces half-year for the year’s personal property when more than 40% of that property’s basis is placed in service in the last three months. Real property and property placed in service and disposed of in the same year are left out of the 40% test.
Cost segregation does not replace MACRS. It assigns each component to the MACRS class the statute and the class-life tables provide. Educational information, not tax advice.
Methods
The default for 3-, 5-, 7-, and 10-year property is 200% declining balance, switching to straight line when that gives a larger deduction. Fifteen- and 20-year property uses 150% declining balance. Residential rental property, nonresidential real property, and qualified improvement property use straight line.
A taxpayer may elect 150% declining balance for property that would otherwise use 200%, or elect straight line, by class, for a year. Once made, the election is irrevocable for that class and year. Those elections are return positions, not study conclusions.
Bonus depreciation under §168(k) is an addition to the §167(a) deduction in the placed-in-service year. It is computed after any §179 expense and before regular MACRS on the remaining basis. As of October 16, 2026, the rate is 100% for qualified property acquired after January 19, 2025.
Conventions
Conventions decide how much of the first year counts. The half-year convention is the default for personal property. Buildings use the mid-month convention. The mid-quarter convention replaces half-year for the year's personal property when more than 40% of its basis is placed in service in the last three months of the tax year.
Under half-year, property is treated as placed in service at the midpoint of the tax year, which is why 5-year property is actually deducted over six tax years. Mid-month treats a building placed in service in any month as placed in service at the middle of that month.
A large fourth-quarter placement of personal property — for example, finishing several studies’ worth of 5-year components in December — is what triggers mid-quarter. Planning the placed-in-service date with your CPA can matter as much as the class mix.
GDS and ADS
The Alternative Depreciation System uses straight line over longer periods — for example 40 years for nonresidential real property and 30 years for residential rental property placed in service after 2017. ADS is required in some cases, including for the real property of an electing real property trade or business, and property required to use ADS is not eligible for bonus depreciation.
An electing real property trade or business under §163(j) must use ADS on its nonresidential real property, residential rental property, and qualified improvement property. The ADS period for QIP is 20 years.
A taxpayer may also elect ADS by class for a year, and for real property the election is property by property. The election is irrevocable. ADS is slower and removes bonus eligibility for property required to use it.
How class lives are assigned
Appendix B of Publication 946 has two tables. Table B-1 lists asset-type classes used in all businesses, such as 00.11 office furniture and 00.3 land improvements. Table B-2 lists activity classes, such as 57.0 distributive trades and services.
The classification order in Publication 946 and Rev. Rul. 2003-81 is to check the asset classes first, then the activity class. Personal property with no class life defaults to 7-year property. Buildings do not use that default; they have statutory lives.
Do not treat those tables as a list of what every restaurant or apartment contains. They assign periods to classes. Whether a particular finish is in class 57.0 or is a structural component is a facts-and-regulations question.
What MACRS replaced
Before 1981, depreciation under §167 depended on estimated useful life and salvage value. ACRS in 1981 and MACRS in 1987 replaced that system with statutory recovery periods. Salvage is now treated as zero.
Useful-life opinions remain historical context. They do not set today’s 5-, 15-, 27.5-, or 39-year periods. A study that argues from expected wear instead of from §168 and the class-life tables is using the wrong framework.
Sources
- 1
- 2IRS Publication 946 — How To Depreciate Property (2025)(opens in a new tab)
Appendix B reproduces the Rev. Proc. 87-56 class lives.
- 3
- 4