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Depreciation methods

by Intuit•1• Updated 1 year ago

This article explains how to compute depreciation using either the Modified Accelerated Cost Recovery System (MACRS) or the Accelerated Cost Recovery System (ACRS) method.

  • In general, use the MACRS method for assets placed in service after December 31, 1986 and for assets for which MACRS was elected in 1986.
  • Use the ACRS method for assets placed in service before 1987 per IRS instructions.
  • You don't need to enter a life in Life or Class Life in the Depreciation (4562) screen unless you prefer to use a different life than expressed in the table.

Nonrecovery methods

Nonrecovery methods should be used for amortization and other nonrecovery properties. Don't use any nonrecovery methods (90-97) for assets that should be calculated using an ACRS or MACRS method. See Publication 534 for more details.

Nonrecovery property includes:

  • Intangible property
  • Property elected for exclusion from ACRS that's properly depreciated under a method of depreciation not based on a term of years
    • You can't use ACRS for property placed in service before 1981 or after 1986
  • Certain public utility property and certain property acquired and excluded from ACRS because of antichurning rules
  • When you use a nonrecovery method, enter the life in Life or Class Life in the Depreciation (4562) screen

Under the General Depreciation System (GDS) method, most tangible property is assigned to one of eight main property classes. The following is a list of the property classes and examples of the types of property included in each class.

  • This table provides general guidelines only.
    • For a complete discussion on property classes and types of property, see IRS Pub. 946.
  • For additional limitations on automobiles and other listed property, see instructions for Form 4562.
Property Classes and Examples of the Types of PropertyMACRS Methods Entry
3-year property
a) Tractor units for over-the-road use
b) Any race horse over 2 years old when placed in service before Jan. 1, 2009
c) Any other horse over 12 years old when placed in service
d) Qualified rent-to-own property		34 or 35
5-year property
a) Automobiles, taxis, buses and trucks (don't use methods 55 or 56 for automobiles that aren't subject to the limits for passenger automobiles)
b) Any qualified technological equipment
c) Office machinery (such as typewriters, calculators, and copiers)		53 or 54 automobile limits not applied
55 or 56 automobile limits applied
45 or 46 truck limits applied
43 or 44 automobile limits not applied, designated as listed property
7-year property
a) Office furniture and fixtures (such as desks, files, and safes)
b) Any property that doesn't have a class life and hasn't been designated by law as being in any other class		57 or 58
10-year property
a) Single-purpose agricultural structure
b) Vessels, barges, tugs, and similar water transportation equipment
c) Fruit- and nut-bearing plants		64 or 65
15-year property
a) Certain depreciable improvements made directly to land or added to it (such as shrubbery, fences, roads, and bridges)
b) Any retail motor fuels outlet, such as a convenience store		66 or 67
20-year property
a) This class includes farm buildings (other than single-purpose agricultural or horticultural structures)		68 or 69
Residential rental property
This class includes real property such as a rental home or structure (including a mobile home) if 80% or more of its gross rental income for the tax year is from dwelling units.
a) A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. It doesn't include a unit in a hotel, motel, inn, or other establishment where more than half the units are used on a transient basis.
b) If you occupy any part of the building or structure for personal use, its gross rental income includes the fair rental value of the part you occupy.
c) The recovery period for this property is 27.5 years.		85
Nonresidential real property
This class includes section 1250 property that is neither of the following:
a) Residential rental property (defined in (7))
b) Property with a class life of less than 27.5 years
The recovery period for nonresidential real property is:
39 years for property placed in service after May 12, 1993, or
31.5 years for property placed in service before May 13, 1993		87
ENTRYMACRS METHODCALCULATION
343-yr % personalIRS PUB: Tables 1-5, IRS Pub. 946
CONVENTION: mid-quarter or half-year
METHOD: 200DB
353-yr SL personalIRS PUB: Tables 8-12, IRS Pub. 946
CONVENTION: mid-quarter or half-year
435-yr % personal, automobile limits are not applied
Designated as listed property		IRS PUB: Tables 1-5, IRS Pub. 946
CONVENTION: mid-quarter or half-year
METHOD: 200DB
445-yr % personal, automobile limits are not applied
Designated as listed property		IRS PUB: Tables 8-12, IRS Pub. 946 (divides depreciable basis by the life)
CONVENTION: mid-quarter or half-year
535-yr % personal, automobile limits are not appliedIRS PUB: Tables 1-5, IRS Pub. 946
CONVENTION: mid-quarter or half-year
METHOD: 200DB
545-yr SL personal, automobile limits are not appliedIRS PUB: Tables 8-12, IRS Pub. 946 (divides depreciable basis by the life)
CONVENTION: mid-quarter or half-year
55>5-yr % automobile limits appliedIRS PUB: Tables 1-5, IRS Pub. 946
CONVENTION: mid-quarter or half-year (see listed property limitations)
METHOD: 200DB
565-yr SL automobile limits appliedIRS PUB: Tables 8-12 , IRS Pub. 946 (divides depreciable basis by the life)
CONVENTION: mid-quarter or half-year (see listed property limitations)
577-yr % personalIRS PUB: Tables 1-5, IRS Pub. 946
CONVENTION: mid-quarter or half-year
METHOD: 200DB
587-yr SL personalIRS PUB: Tables 8-12, IRS Pub. 946
(divides depreciable basis by the life)
CONVENTION: mid-quarter or half-year
6410-yr % personalIRS PUB: Tables 1-5, IRS Pub. 946
CONVENTION: mid-quarter or half-year
METHOD: 200DB
6510-yr SL personalIRS PUB: Tables 8-12, IRS Pub. 946
(divides depreciable basis by the life)
CONVENTION: mid-quarter or half-year
6615-yr % personalIRS PUB: Tables 1-5, IRS Pub. 946
CONVENTION: mid-quarter or half-year
METHOD: 150DB
6715-yr SL propertyIRS PUB: Tables 8-12, IRS Pub. 946 (divides depreciable basis by the life)

CONVENTION: mid-quarter or half-year

6820-yr % propertyIRS PUB: Tables 1-5, IRS Pub. 946
CONVENTION: mid-quarter or half-year
METHOD: 150DB
6920-yr SL propertyIRS PUB: Tables 8-12, IRS Pub. 946
(divides depreciable basis by the life)
CONVENTION: mid-quarter or half-year
4125-yr SL propertyIRS PUB: Tables 8-12, IRS Pub. 946 (divides depreciable basis by the life)
CONVENTION: mid-quarter or half-year
8527.5 SL Residential REIRS PUB: Table 6, IRS Pub. 946
CONVENTION: mid-month
8731.5/39 SL Nonresidential REIRS PUB: Table 7, IRS Pub. 946
CONVENTION: mid-month
8850-yr SL RailroadIRS PUB: Tables 8-12, IRS Pub. 946 (divides depreciable basis by the life)
CONVENTION: mid-quarter or half-year
ENTRYACRS METHODCALCULATION
303-yr % automobileIRS PUB: IRS Pub. 534 percentages (luxury car limitations/listed property automatic)
CONVENTION: full year
313-yr SL automobileIRS PUB: divides depreciable basis by life (luxury car limitations/listed property automatic)
CONVENTION: full year
323-yr % personalIRS PUB: IRS Pub. 534 percentages
CONVENTION: full year
333-yr SL personalIRS PUB: divides depreciable basis by life (and divides by 2 for the first year)
CONVENTION: full month
505-yr personalIRS PUB: IRS Pub. 534 percentages
CONVENTION: full year
515-yr SL personalIRS PUB: divides depreciable basis by life (and divides by 2 for the first year)
CONVENTION: full month
6010-yr % propertyIRS PUB: IRS Pub. 534 percentages
CONVENTION: full year
6110-yr SL propertyIRS PUB: divides depreciable basis by life (and divides by 2 for the first year)
CONVENTION: full month
6215-yr % public utilityIRS PUB: IRS Pub. 534 percentages
6315-yr SL public utilityIRS PUB: divides depreciable basis by the life (and divides by 2 for the first year)
7015-yr % x low income REIRS PUB: Table 2, IRS Pub. 534 (if asset was placed in service between 3/16/84 and 5/8/85) or Table 3 (if placed in service after 5/8/85)
CONVENTION: full month
7115-yr SL low income REIRS PUB: Divide depreciable basis by the life
CONVENTION: full month
You can use alternate lives of 35 and 45 years.
The program doesn't use the table available for these lives but divides the depreciable basis by the life.
8015-yr % Real propertyIRS PUB: Table 1, IRS Pub. 534 (for assets placed in service before 3/16/84)
CONVENTION: full month
8115-yr SL Real propertyIRS PUB: divides depreciable basis by the life
CONVENTION: full month
8915-yr SL RE (tables)IRS PUB: straight-line % instead of dividing by the life
8218/19-yr % REIRS PUB: Assets placed in service between 3/16/84 and 5/8/85 should use an 18-year life.

Assets placed in service between 3/16/84 and 6/22/84 use Table 5, ​IRS Pub. 534


​Assets placed in service after 5/8/85 have 19-year life and use Table 6, ​IRS Pub. 534​


Assets placed in service between 6/23/84 and 5/8/85 use Table 4, IRS Pub. 534


CONVENTION: assets placed in service between 3/16/84 and 6/22/84: full month; between 6/23/84 and 5/8/85: mid-month; after 5/8/85: mid-month

8318/19 SL REIRS PUB: 18-yr assets use Tables 7 and 8, IRS Pub. 534; 19-yr asset use Table 9, IRS Pub. 534
CONVENTION: mid-month
Life dates are the same as for method 82
ENTRYNONRECOVERYCALCULATION
90Half-yearConsiders an asset placed in service at the mid-point of the tax year.
Divides basis by the life (2 years) and prorates the amount by the number of months held that year.
91Straight-LineDivides basis by the life and prorates the amount by the number of months held that year.
An asset is held for the whole month if placed in service before the 16th of the month.
92200% DBCalculates depreciable basis, subtracts prior depreciation, multiplies the result by 2, divides by the life, and prorates the total by the number of months held that year.
An asset is held for the whole month if placed in service before the 16th of the month.
93150% DBCalculates depreciable basis, subtracts prior depreciation, multiplies the result by 1.5, divides by the life, and prorates the total by the number of months held that year.
An asset is held for the whole month if placed in service before the 16th of the month.
94125% DBCalculates depreciable basis, subtracts prior depreciation, multiplies the result by 1.25, divides by the life, and prorates the total by the number of months held that year.
An asset is held for the whole month if placed in service before the 16th of the month.
95Units of ProductionDivides adjusted basis by beginning reserves multiplied by units produced.
96CLADRNo calculation. Must use the override Current Depreciation/amortization (-1=none) [O] in the Regular Depreciation section.
97IDC S/L AmortFor oil and gas, calculated IDC expense using 60 month straight-line
ENTRYLANDCALCULATION
99LandTracking purposes only

See also IRS Pub. 946 How to Depreciate Property

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