Key takeaways
- Most business assets are depreciated under MACRS. Computers and light trucks are 5-year property; office furniture is 7-year property.
- For 2026, Section 179 lets you expense up to $2,560,000 of qualifying property, phasing out above $4,090,000, per Publication 946.
- Property acquired after January 19, 2025 qualifies for a permanent 100% bonus depreciation deduction.
- You need the receipt showing cost and the date the asset was placed in service, plus business-use records for mixed-use items.
What is depreciation?
When you buy a $6,000 camera for your business, you don’t use it up in one year. Depreciation matches the cost to the years you use the asset. Each year you deduct a portion as a business expense on your return, usually on Form 4562 and then Schedule C if you’re self-employed.
Depreciation applies to capital expenditures: equipment, vehicles, furniture, buildings and improvements. Land is never depreciated, and neither is anything you use purely for personal reasons.
Keep purchase receipts for the assets you depreciate with the Manage Receipt app.
Methods
- MACRS (tax): the IRS system for most property placed in service after 1986. It assigns recovery periods, such as 5 years for computers and light trucks, 7 years for office furniture, 27.5 years for residential rental buildings and 39 years for commercial buildings.
- Half-year convention: under MACRS, most equipment is treated as placed in service mid-year, so you get half a year’s depreciation in the first year.
- Straight-line (books): many small businesses use equal yearly amounts in their own accounts because it’s simple.
Section 179 and bonus depreciation
Both let you deduct much more, or all, of an asset’s cost in the first year. Here’s how they compare with regular depreciation:
| Regular MACRS | Section 179 | Bonus depreciation | |
|---|---|---|---|
| Year-one deduction | Part of the cost | Up to the full cost | 100% for property acquired after Jan 19, 2025 |
| 2026 limit | None | $2,560,000, phasing out above $4,090,000 | No dollar cap |
| Can create a loss? | Yes | No, limited to business income | Yes |
| Pick per asset? | Yes | Yes | Partly, opt out by property class |
Mixed-use listed property, such as a car, must be used more than 50% for business to qualify for Section 179 or bonus depreciation. SUVs have a separate Section 179 cap of $32,000 for 2026.
Should you take it all now? Expensing everything in year one is great when you have high income this year. If you expect higher income later, spreading the deduction can save more over time. A tax pro can run both scenarios.
Example
A freelance videographer buys a $6,000 camera kit in 2026 and uses it 100% for business. It’s 5-year property.
| Year | MACRS rate | Regular deduction | Section 179 or bonus |
|---|---|---|---|
| 2026 | 20% | $1,200.00 | $6,000 |
| 2027 | 32% | $1,920.00 | $0 |
| 2028 | 19.2% | $1,152.00 | $0 |
| 2029 | 11.52% | $691.20 | $0 |
| 2030 | 11.52% | $691.20 | $0 |
| 2031 | 5.76% | $345.60 | $0 |
| Total | 100% | $6,000.00 | $6,000 |
The total deduction is the same either way. What changes is the timing. Five-year property spans six tax years because of the half-year convention.
Records needed
- The purchase receipt or invoice showing the cost, including sales tax, delivery and installation.
- The date you placed the asset in service, which may differ from the purchase date.
- Business-use percentage for anything you also use personally, such as a vehicle or phone.
- Depreciation taken each year, and the sale or disposal date and price when you get rid of it.
Keep these for as long as you own the asset, plus the normal retention period after you sell it.
The receipt every depreciation schedule needs
Scan the invoice when you buy equipment and Manage Receipt captures the vendor, date and total, which are the starting point for any depreciation calculation. Keep the file in Doc Wallet for the life of the asset, and the AI tax report flags large purchases so your preparer can choose MACRS, Section 179 or bonus.
Explore AI Tax ReportsFrequently asked questions
Should I depreciate or expense it?
If the item costs $2,500 or less, the de minimis safe harbor usually lets you expense it. For larger assets, Section 179 or 100% bonus depreciation can deduct the full cost in year one. Spreading it out with regular depreciation can make sense if you expect higher income in later years.
What is Section 179?
Section 179 lets a business elect to deduct the cost of qualifying equipment and software in the year it’s placed in service instead of depreciating it. For 2026, the limit is $2,560,000, reduced once total purchases exceed $4,090,000, and the deduction can’t exceed your business taxable income.
What is bonus depreciation in 2026?
Bonus depreciation is an extra first-year deduction. Under the 2025 tax law, qualified property acquired after January 19, 2025 gets a permanent 100% deduction. Unlike Section 179, there’s no dollar cap and it can create a loss. You can opt out by property class if spreading deductions suits you better.
Can I depreciate a car I use for business?
Yes, the business-use share of it, if you use actual expenses rather than the standard mileage rate. A car must be used more than 50% for business to qualify for Section 179 or bonus depreciation, and passenger cars have yearly depreciation caps. Keep a mileage log to prove the business-use percentage.