MACRS Recovery Periods Under the General Depreciation System (GDS)
Depreciable assets, except for buildings, fall within a three-year, five-year, seven-year, 10-year, 15-year, or 20-year recovery period under the general depreciation system (GDS).
However, the actual recovery period shown in the MACRS depreciation tables show a recovery period of one additional year. This is because of the convention rules.
Under the half-year convention you may only deduct 50% of the first year's depreciation. This is because the half-year convention treats property as being purchased in the middle of the year regardless of when you actually purchased the property during the year. The balance of depreciation, the remaining 50%, is written off in the year after the last class life year of the property.
Also note that, under the half-year convention, if the property is sold, only one-half of the full depreciation for that year is deductible.
If you look at the MACRS table (shown below) for 5-year property,such as computers, you'll notice that the span of years for the recovery period is six years. This is because, under the half-year convention:
- Only 50% of the first year's depreciation is deductible.
- From the second year through the fifth year, a full year's depreciation is deductible each of those years.
- The balance of depreciation is written off in the year after the last class life year. For 5-year property that's the sixth year. So, 1/2 + 5 + 1/2 (the balance remaining in the last year after the class life year) equals 6 years.
|Property Class Under GDS||Recovery Period||Examples of Property|
|25-Year||20 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996.||This class is water utility property, which is either of the following:
|Residential rental property||27.5 Years||Residential rental property placed in service after December 31, 1986. Must use straight-line depreciation, mid-month convention. This property, which is subject to the 27.5-year recovery period, is defined as a rental building or structure for which 80% or more of the gross rental income for the tax year is rental income from dwelling units. If you occupy any part of the building, the gross rental income includes the fair rental value of the part you occupy. This property does NOT include a unit in a hotel, motel, inn, or other establishment where more than one-half of the units are used on a transient basis.|
|Nonresidential real property||31.5 years||Nonresidential real property placed in service after December 31, 1986, but before May 13, 1993. Must use straight-line depreciation, mid-month convention|
|Nonresidential real property||39 Years||Nonresidential real property placed in service after May 12, 1993. Must use straight-line depreciation, mid-month convention.|
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- See the Business Deductions table of contents for more information about depreciation.