Key Takeaways
- MACRS is the mandatory depreciation system for property placed in service after 1986.
- GDS = standard (accelerated), ADS = alternative (straight-line, longer periods).
- Recovery periods: 5-year (computers, autos), 7-year (furniture), 27.5-year (residential), 39-year (nonresidential).
- Qualified Improvement Property (QIP) is 15-year property.
- Land is NEVER depreciable.
- ADS is mandatory for property used outside U.S. and tax-exempt use property.
Last updated: January 2026
MACRS Basics & Recovery Periods
Why This Matters for the Exam
MACRS is fundamental to Part 2. The exam tests recovery periods extensively. Know the common asset classes and when ADS is required.
Exam Note: For the May 2025 - February 2026 testing window, you are tested on depreciation rules as of December 31, 2024 (Tax Year 2024).
Expect at least 4-5 questions on MACRS.
MACRS Eligibility
| Requirement | Description |
|---|---|
| Owned by taxpayer | Or held for investment |
| Used in trade/business | Or production of income |
| Determinable useful life | Land never qualifies |
| Expected life >1 year | Current expenses deducted immediately |
GDS vs. ADS
| System | Method | When Used |
|---|---|---|
| GDS | Declining balance (accelerated) | Default for most property |
| ADS | Straight-line (longer periods) | Mandatory for certain property |
When ADS Is Mandatory
| Property Type | ADS Required |
|---|---|
| Used outside U.S. | Yes |
| Tax-exempt use property | Yes |
| Tax-exempt bond financed | Yes |
| Elect out of §163(j) | Yes |
| Elective for any property | Yes (irrevocable) |
MACRS Recovery Periods (GDS)
| Recovery Period | Asset Class |
|---|---|
| 3-Year | Racehorses (>2 years old), certain tractors |
| 5-Year | Computers, office machinery, automobiles, light trucks |
| 7-Year | Office furniture, fixtures, most equipment (default) |
| 10-Year | Vessels, barges, water transportation |
| 15-Year | QIP, land improvements (fences, sidewalks) |
| 20-Year | Farm buildings, municipal sewers |
| 27.5-Year | Residential rental (80%+ dwelling income) |
| 39-Year | Nonresidential real property (offices, warehouses) |
Common Exam Traps
| Asset | Recovery Period | Trap |
|---|---|---|
| Computer | 5-year | Often confused with 7-year |
| Office furniture | 7-year | Default "catch-all" class |
| Apartment building | 27.5-year | Must be 80%+ residential |
| Office building | 39-year | Nonresidential = 39 |
Qualified Improvement Property (QIP)
| Element | Rule |
|---|---|
| Definition | Internal improvements to nonresidential building |
| Recovery period | 15 years |
| Bonus eligible | Yes (100% through 2026) |
| Excludes | Elevators, escalators, structural expansion |
Real-World Scenario
Scenario: Law firm buys $50,000 desks (7-year) and $20,000 laptops (5-year).
- Desks: 7-year furniture, use 200% DB or SL.
- Laptops: 5-year computers, use 200% DB or SL.
- New security system (QIP): 15-year, 100% bonus eligible.
On the Exam
Expect 4-5 questions on MACRS, typically:
- Recovery Period Questions: "What is the recovery period for office furniture?"
- ADS Questions: "When is ADS mandatory?"
- QIP Questions: "What is the recovery period for QIP?"
The key is to remember: 5-year = computers/autos. 7-year = furniture (default). 27.5-year = residential. 39-year = nonresidential. QIP = 15-year.
Test Your Knowledge
Office desks and chairs. MACRS GDS recovery period?
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B
C
D
Test Your Knowledge
Apartment complex (90% residential income). Recovery period?
A
B
C
D
Test Your Knowledge
Which system is mandatory for property used outside the U.S.?
A
B
C
D