Depreciation Basics: MACRS, Recovery Periods, and the 2025 Bonus Rules
Published November 7, 2026
Publication 946 (2025), How To Depreciate Property, explains how to recover costs. It covers business and income-producing property over time. This guide covers the basic terms. These are MACRS, recovery periods, the half-year convention, and the 2025 special depreciation allowance. It is general information. It is not advice about your case.
What depreciation means
Depreciation spreads the cost of property over the years you use it to earn income. You generally cannot deduct the full cost in the year you buy it. That applies to a vehicle, machine, or building. Instead, you deduct the cost over the property's recovery period, using the method that applies to that property.
Most tangible property placed in service after 1986 is depreciated under MACRS. That is the Modified Accelerated Cost Recovery System. MACRS uses set recovery periods and percentage tables. Table A-1 in the publication lists the percentages for each year. Those percentages apply to 5-year, 7-year, and other property.
Recovery periods
The recovery period depends on the type of property. The publication lists these common classes:
- 5-year property: automobiles, taxis, buses, helicopters, and trucks, along with qualified technological equipment and office machinery.
- 7-year property: office furniture and fixtures, such as desks, files, and safes.
- 27.5-year property: residential rental property.
- 39-year property: nonresidential real property.
Check the publication's property lists before you assign a class. The class depends on what the property is, not on what you call it. The special allowance is a separate rule, so check it after you pick the class.
The half-year convention
Under the half-year convention, you treat property placed in service as placed in service at midyear. The publication says so. For a 12-month tax year, you deduct half a year of depreciation. You do that in the year you place the property in service. You enter “HY” in Part III of Form 4562 to show this convention.
The publication also describes the mid-quarter and mid-month conventions. Those rules apply only in certain cases. If neither applies, the half-year convention applies.
The 2025 special depreciation allowance
The publication describes a special depreciation allowance for certain property. For qualified property acquired and placed in service after January 19, 2025, the publication says P.L. 119-21, the One Big Beautiful Bill Act, reinstated a 100% special depreciation allowance. You can elect a 40% allowance instead. For long production period property and certain aircraft, the elective rate is 60%.
The allowance does not apply to every asset. Read the publication's rules for qualified property before you use it. Property acquired and placed in service before that date follows different rules in the publication.
Section 179 is a separate rule
Section 179 lets you elect to deduct part or all of the cost of certain property. You do this in the year you place it in service. For most property, the publication sets the maximum at $2,500,000. This applies to tax years beginning in 2025. The limit is reduced. That happens when the cost of section 179 property placed in service during the year is more than $4,000,000. The deduction also cannot be more than your business income. You make the election in Part I of Form 4562.
Form 4562 and records
Use Form 4562 to figure depreciation and amortization, and attach it to your return. Keep a record for each asset. Note its cost or other basis. Also note the date you placed it in service, the business use percentage, and the depreciation you claimed. The publication says you keep deducting depreciation even if the property is temporarily idle. You stop when you fully recover its basis or retire it from service.
Next steps
Start with the list of property you bought or improved this year. For each item, identify the recovery period, the convention, and whether the special allowance applies. Then read the Form 4562 instructions. If an asset is large, consider a tax professional. The same is true if you use it for business and personal purposes. They can review the figures with you. For the basics of the form itself, see our guide to Form 4562 depreciation basics.
Sources: Sources: IRS, Publication 946 (2025), How To Depreciate Property (https://www.irs.gov/pub/irs-pdf/p946.pdf) This is general information, not advice about your specific return.
