15.1 MACRS Basics & Recovery Periods
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 and is bonus-eligible.
- Land is NEVER depreciable.
- ADS is mandatory for property used outside U.S. and tax-exempt use property.
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 July 1, 2026 – February 28, 2027 testing window, you are tested on federal tax law as of December 31, 2025 (Tax Year 2025), including changes made by the One Big Beautiful Bill Act (OBBBA) signed July 4, 2025.
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% bonus permanently restored by OBBBA for property acquired AND placed in service after January 19, 2025 |
| Excludes | Elevators, escalators, structural expansion |
New OBBBA Provision — §168(n) Qualified Production Property
OBBBA created a brand-new category: Qualified Production Property (QPP) under §168(n). Certain new domestic manufacturing real property placed in service through 2032 is 100% bonus-eligible — even though real property normally is NOT bonus-eligible. This is a major reshoring incentive. See Section 15.4 for full coverage; expect at least one exam question on the existence of this carve-out.
Real-World Scenario (Tax Year 2025)
Scenario: Law firm buys $50,000 desks (7-year) and $20,000 laptops (5-year) in March 2025.
- 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 (placed in service after Jan 19, 2025).
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. §168(n) QPP = new 100% bonus-eligible real property carve-out for domestic manufacturing.
Office desks and chairs. MACRS GDS recovery period?
Apartment complex (90% residential income). Recovery period?
Which system is mandatory for property used outside the U.S.?