Depreciation
Depreciation is the systematic allocation of the cost of a tangible asset over its useful life, allowing businesses and rental property owners to deduct the cost of assets as they wear out or become obsolete.
Exam Tip
MACRS: 5-year (computers, autos), 7-year (furniture, equipment), 27.5 years (residential rental), 39 years (commercial). Bonus depreciation: 100% if qualifying property is acquired AND placed in service after January 19, 2025; generally 40% for earlier acquisitions placed in service in 2025. Half-year convention default; mid-quarter if >40% placed in service Q4.
EA exam baseline: For the 2026–2027 SEE, use Tax Year 2025 and federal tax law through December 31, 2025. Later-year amounts below are explicitly labeled comparisons, not the default exam year. IRS SEE policy.
What is Depreciation?
Depreciation allows businesses to recover the cost of tangible assets over their useful life through annual tax deductions. The Modified Accelerated Cost Recovery System (MACRS) is the primary method used for tax purposes.
MACRS Recovery Periods
| Asset Class | Recovery Period |
|---|---|
| Computers, autos | 5 years |
| Furniture, equipment | 7 years |
| Residential rental property | 27.5 years |
| Commercial property | 39 years |
Conventions and Special Rules
| Rule | Details |
|---|---|
| Half-year convention | Default; assumes asset placed in service mid-year |
| Mid-quarter convention | Required if >40% of assets placed in service in Q4 |
| Bonus depreciation (2025) | 100% for qualifying property acquired AND placed in service after January 19, 2025; generally 40% for qualifying property acquired earlier and placed in service in 2025 |
| Section 179 | Expense full cost in year 1 (up to limit) |
Exam Alert
Know MACRS recovery periods: 5-year (computers/autos), 7-year (furniture), 27.5 years (residential rental), 39 years (commercial). Bonus depreciation is 100% for qualifying property acquired AND placed in service after January 19, 2025; qualifying earlier acquisitions placed in service in 2025 generally retain 40%. Half-year convention is the default; mid-quarter applies when >40% placed in service in Q4.
2025 EA Exam Notes
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