MACRS Depreciation Calculator

Understanding MACRS Depreciation

The Modified Accelerated Cost Recovery System (MACRS) is the primary method used in the United States to recover the cost of tangible property over time. Established by the Tax Reform Act of 1986, MACRS replaced earlier systems and introduced a standardized set of depreciation schedules. Under MACRS, most business and investment property placed in service after 1986 is depreciated using predetermined percentages that front-load deductions. This accelerated structure acknowledges that many assets lose value quickly and offers a tax incentive to invest in productive property. The calculator on this page generates a full deduction schedule for the most common property classes using the half-year convention, enabling entrepreneurs and accountants to forecast deductions without consulting complex IRS tables.

Depreciation is fundamentally a method for allocating the cost of an asset over its useful life. Rather than deducting the entire purchase price in the year of acquisition, the tax code spreads the deduction across several years. MACRS categorizes assets into recovery periods that roughly correspond to their expected economic life. For instance, computers and peripheral equipment are typically five-year property, while office furniture falls in the seven-year class. The recovery period determines not only the number of years over which depreciation is taken but also the specific percentage allowed each year. These percentages embody both the depreciation method (generally the double declining balance switched to straight line) and the applicable convention.

Conventions are assumptions about when property is placed in service within the year. The half-year convention—the default under MACRS—assumes all property is placed in service at the midpoint of the year, regardless of the actual purchase date. As a result, only a half year of depreciation is allowed in the first year, and the remaining half is claimed in the final year of the schedule. Other conventions, such as the mid-quarter convention or mid-month convention for real estate, address scenarios where asset purchases are concentrated in a particular part of the year. This calculator focuses solely on the half-year convention to keep the computation straightforward and broadly applicable.

The mathematics of MACRS can be summarized with a concise expression. Let \(C\) represent the asset cost and \(r_i\) the depreciation rate for year \(i\). The deduction in year \(i\) is simply \(C \times r_i\). Expressed in MathML:

where \(D_i\) is the depreciation deduction for year \(i\). The challenge lies not in the formula but in identifying the correct set of \(r_i\) values. The IRS publishes these rates in tables found in Publication 946. For a five-year asset, the half-year convention yields the following percentages: 20%, 32%, 19.2%, 11.52%, 11.52%, and 5.76%. Notice that the schedule spans six tax years even though the recovery period is five years; the half-year convention adds an extra year to capture the final half year of depreciation.

To make the calculator practical, the essential rates for the most common classes are embedded directly in the code. When you select a recovery period and input the cost of the asset, the script multiplies the cost by each rate to generate the deduction for that year. The results are displayed in a table that also tracks accumulated depreciation and remaining basis. This holistic view helps with planning future deductions and projecting taxable income. An excerpt of the built-in rates is presented below for reference.

Each column lists the percentage deduction allowed for that year under the half-year convention. Zeros appear once the recovery period has ended and no further depreciation is allowed. The rates for 15- and 20-year property extend beyond the portion displayed in the table, with the final years capturing the remaining basis so that the totals sum to 100%. The calculator references complete arrays to ensure the schedule fully depreciates the asset regardless of the class selected.

Let us walk through an example. Assume a small business buys a delivery van for $40,000. Vehicles used more than 50% for business fall into the five-year property class. Entering a cost of 40000 and selecting the 5-year recovery period produces a schedule where the first-year deduction is $8,000 (20% of $40,000). The second-year deduction jumps to $12,800, followed by $7,680 in the third year, $4,608 in both the fourth and fifth years, and a final $2,304 in year six. The accumulated depreciation after year three is $28,480, leaving a remaining basis of $11,520. This information is essential for planning asset disposals or determining gain or loss if the van is sold.

While MACRS offers accelerated deductions, taxpayers may elect alternative depreciation systems or Section 179 expensing for additional flexibility. Section 179 allows immediate expensing up to statutory limits, while bonus depreciation permits a large percentage of certain new or used assets to be deducted in the first year. These options reduce or eliminate the need for a multi-year schedule but may not be advantageous in every situation. The calculator does not account for these alternatives, focusing instead on the baseline MACRS method that applies when no special elections are made.

Salvage value, the estimated amount you expect to receive when an asset is disposed of, is ignored under MACRS. Unlike straight-line financial accounting, tax depreciation assumes the asset is fully exhausted, so the entire cost is recovered. This assumption simplifies compliance but can produce book-tax differences that require reconciliation on financial statements. When an asset is sold for more than its remaining basis, a portion of the gain may be taxed as ordinary income due to depreciation recapture rules.

Record keeping is vital. The IRS expects businesses to maintain documentation of purchase dates, cost basis, and the depreciation method used for each asset. In audits, failure to substantiate these details can lead to disallowed deductions and penalties. Good records also help when assets are converted to personal use, transferred to a different business entity, or subjected to casualty losses. The schedule produced by this calculator can serve as a starting point for that documentation, but it should be supplemented with invoices and accounting entries.

Understanding your depreciation schedule helps forecast taxable income, manage cash flow, and plan for replacement of aging assets. It also influences financial statements, as many businesses mirror tax depreciation in their books for simplicity. However, tax depreciation and book depreciation can diverge when different methods are chosen for managerial purposes. Always consult a tax professional when dealing with complex assets, partial business use, or mid-quarter convention scenarios. The calculator is intended for educational exploration and should not be considered tax advice.

Interpreting the Output

The schedule above lists each year's deduction along with the remaining basis after accounting for accumulated depreciation. Copying the table lets you paste the figures into a spreadsheet for further analysis or tax planning.

Saving Your Schedule

Use the copy button to export the depreciation table into your records or share it with an accountant. Maintaining a log of asset purchases and yearly deductions helps track write‑offs and supports accurate financial statements.