MACRS and Depreciation Glossary

Systems and periods

GDS — General Depreciation System; the usual MACRS table. Most building components discussed in this library are GDS assets unless an ADS rule applies.

ADS — Alternative Depreciation System; longer, straight-line periods under §168(g). Property required to use ADS is not eligible for bonus depreciation. Electing real-property trades or businesses and certain other statutory categories use ADS. This glossary does not list every ADS category that was not extracted from the opened §168 page.

Class life — the period assigned in Rev. Proc. 87-56, reproduced in Publication 946 Appendix B, which then maps to a GDS recovery period under §168(e)(1). A class life of more than four but less than ten years maps to five-year property; ten to less than sixteen maps to seven-year property; twenty to less than twenty-five maps to fifteen-year property. Asset classes 00.11 through 00.4 apply across businesses. Activity classes 01.1 through 80.0 apply to particular trades. Rev. Rul. 2003-81, as described in the research register, is the reminder to check the asset category before the activity category.

5-year / 7-year / 15-year / 27.5-year / 39-year — recovery periods, not construction warranties. 27.5 is residential rental; 39 is nonresidential real property. Five-year property in a cost-segregation setting is often personal property in class 57.0 or information systems in class 00.12. Seven-year property is often office furniture in class 00.11 or personal property with no class life. Fifteen-year property is often class 00.3 land improvements or qualified improvement property.

Qualified improvement property (QIP) — certain interior improvements to a nonresidential building after it was first placed in service; 15-year property under §168(e)(6). The statute excludes enlargements, elevators and escalators, and internal structural framework. QIP is defined by reference to nonresidential real property, so it does not apply to a residential rental building. QIP can be qualified property for bonus depreciation because its recovery period is twenty years or less. It is not a fifth building class for apartments.

Qualified production property — an elective 100 percent allowance under §168(n) for a designated portion of nonresidential real property used as an integral part of a qualified production activity. Notice 2026-16, opened for this library, describes construction that must begin after January 19, 2025, and before January 1, 2029, and a placed-in-service window after July 4, 2025, and before January 1, 2031. Offices, administrative space, lodging, parking, sales, research, software development, and engineering are excluded. This is not MACRS reclassification and is not §168(k).

First-year allowances and conventions

Bonus depreciation — the additional first-year deduction under §168(k). As of October 2026 the rate is 100 percent for qualified property acquired after January 19, 2025, under Public Law 119-21 and Notice 2026-11. Property acquired after September 27, 2017, and before January 20, 2025, remains on the prior phase-down. Bonus depreciation is a rate. It is not a recovery class. A 39-year building does not become qualified property because a study exists.

§179 — an election to expense qualifying property, subject to 2026 limits of $2,560,000 phasing out above $4,090,000 (Rev. Proc. 2025-32). Publication 946 describes certain qualified real property — QIP and, on nonresidential real property, roofs, HVAC, fire protection and alarm, and security systems — as eligible in addition to tangible personal property. California’s Form FTB 3885 instructions, opened for this library, do not conform to the enhanced federal dollar limits; California’s corporate instructions state a $25,000 maximum and a $200,000 phase-out. Federal and state figures can therefore diverge in the same year.

Half-year convention — personal property is generally treated as placed in service at mid-year. Mid-quarter convention — applies when more than 40 percent of the personal-property basis is placed in service in the last quarter, under §168(d). Mid-month convention — real property is treated as placed in service at the midpoint of the month. A study that moves basis from a 39-year mid-month account into five- and seven-year accounts also changes which convention applies to that basis.

Placed in service — ready and available for a specific use; the event that starts depreciation. Publication 946 and Treas. Reg. §1.167(a)-11 discuss the concept. A building that is not yet ready for its intended occupancy is not placed in service merely because a certificate of occupancy for a shell was issued, but this library does not invent a multi-factor occupancy test beyond what was opened. Acquisition date for bonus depreciation is a different event from placed-in-service date; a written binding contract can fix the acquisition date even though depreciation has not started.

§481(a) adjustment — the cumulative catch-up when an accounting method changes. A look-back study that changes depreciation for property placed in service in earlier years typically produces a §481(a) adjustment rather than a stack of amended returns. The automatic-change procedures and designated change numbers live in Rev. Proc. 2025-23, as modified, not in this glossary’s short sentence.

Recapture and related terms

Section 1245 recapture — ordinary-income recapture of depreciation on §1245 property when that property is disposed of. A study that increases early depreciation on appliances, dedicated wiring, or process equipment also increases the ordinary-income amount if those assets are sold.

Section 1250 recapture — recapture limited to additional depreciation, defined in §1250(b) as depreciation in excess of straight line. MACRS buildings are already straight-line, which is why sale discussions more often turn on unrecaptured §1250 gain than on classic additional-depreciation recapture. This page does not state a capital-gain rate that was not confirmed.

Component depreciation — the pre-ACRS practice of assigning separate useful lives to parts of a building. ACRS and MACRS prohibit depreciating a building by inventing component lives for structural components. Hospital Corporation of America held that the prohibition does not prevent classifying true personal property under the ITC tests. That distinction is why a study is not “component depreciation” when it is classifying §1245 property, and why it is when it is merely slicing a wall.