MACRS Depreciation Schedule 2026: Recovery Periods, Conventions, and Tables
MACRS governs how fast you may deduct the cost of business and rental property. Getting the class life and convention right is worth more than most taxpayers realize.
MACRS, the Modified Accelerated Cost Recovery System, is the depreciation method required under IRC Section 168 for most tangible property placed in service after 1986. It assigns each asset a property class and recovery period, applies a depreciation method (200% declining balance, 150% declining balance, or straight line), and applies a convention that determines how much depreciation is allowed in the first and last years. For 2026, the recovery periods and conventions are unchanged, but 100% bonus depreciation under the OBBBA means much of the schedule is bypassed entirely in year one.
The Property Classes and Recovery Periods
Every depreciable asset falls into a class that determines its recovery period. The classes most relevant to business owners and real estate investors are these.
3-year property: tractor units for over-the-road use, certain manufacturing tooling, and racehorses over two years old.
5-year property: automobiles, light trucks, computers and peripherals, office machinery, appliances, carpeting, and furniture used in residential rental property. This is the largest bucket in a typical cost segregation study.
7-year property: office furniture and fixtures, agricultural machinery, and any property without a designated class life. Much of the specialty equipment in a restaurant or medical office lands here.
10-year property: vessels, barges, single-purpose agricultural structures, and certain fruit-bearing trees and vines.
15-year property: land improvements such as paving, sidewalks, fencing, landscaping, and site utilities, along with qualified improvement property.
20-year property: farm buildings other than single-purpose structures, and certain municipal utility property.
27.5-year property: residential rental property, meaning a building from which 80% or more of gross rental income is rental income from dwelling units.
39-year property: nonresidential real property. Note that a short-term rental with an average stay of seven days or less is generally nonresidential and depreciates over 39 years, not 27.5, which surprises many owners.
Methods: 200% DB, 150% DB, and Straight Line
Under the General Depreciation System (GDS), 3-, 5-, 7-, and 10-year property uses the 200% declining balance method, switching to straight line in the year that produces a larger deduction. 15- and 20-year property uses 150% declining balance with the same switch. All real property, both 27.5-year and 39-year, uses straight line.
The declining balance method front-loads the deduction. A 5-year asset does not deduct 20% per year. Under the half-year convention it deducts 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76% across six tax years, because the half-year convention splits the first year's allowance and pushes the remainder into an extra year.
You may elect straight line over the GDS recovery period, or elect the Alternative Depreciation System. Both elections apply to all property in that class placed in service that year, and both are irrevocable.
The Conventions Are Where Returns Go Wrong
The convention determines the deemed placed-in-service date, and it changes the first-year deduction substantially.
Half-year convention. The default for personal property. All property is treated as placed in service at the midpoint of the year, giving half a year of depreciation regardless of the actual date.
Mid-quarter convention. This is the trap. If more than 40% of the aggregate basis of all personal property placed in service during the year falls in the fourth quarter, the half-year convention is replaced by the mid-quarter convention for every asset placed in service that year, not just the fourth-quarter ones. Each asset is then treated as placed in service at the midpoint of its actual quarter. A December equipment purchase can therefore reduce the first-year deduction on assets you bought in March.
Mid-month convention. Applies to all real property. Depreciation begins at the midpoint of the month the property is placed in service, so a building placed in service in December yields half a month of depreciation in year one.
The mid-quarter test is computed after removing property expensed under Section 179 but before bonus depreciation. In a year with 100% bonus on everything, the convention rarely changes the outcome, which is exactly why practitioners stop checking it and then get caught in a year when bonus is elected out.
GDS vs ADS: When You Do Not Get a Choice
The Alternative Depreciation System uses straight line over longer recovery periods, generally 5 years for cars and computers, 10 for office furniture, 20 for land improvements, 30 for residential rental, and 40 for nonresidential real property.
ADS is mandatory in several situations that come up often: property used predominantly outside the United States, tax-exempt use property, property financed by tax-exempt bonds, listed property used 50% or less in a qualified business use, and property held by an electing real property trade or business under Section 163(j)(7).
That last one is the important one. If your rental or development business elects out of the business interest limitation of Section 163(j) so it can fully deduct mortgage interest, the price is ADS on residential rental, nonresidential real property, and qualified improvement property. ADS property is also not eligible for bonus depreciation. Making that election without modeling it can quietly cost more than the interest deduction it preserves.
How Bonus Depreciation Interacts With the Schedule
With 100% bonus depreciation restored permanently under the OBBBA, any asset with a recovery period of 20 years or less is fully deductible in year one, and the MACRS table for that asset never gets used.
That does not make MACRS irrelevant. It still governs the assets you elect out of bonus for, ADS property, real property that is not bonus-eligible, and the depreciation recapture calculation when you sell. It also determines the class life that makes an asset bonus-eligible in the first place, which is the entire point of a cost segregation study: the study does not create a deduction, it reclassifies basis into a class life short enough to qualify.
The correct ordering on a return is Section 179 first, then bonus depreciation on the remaining basis, then MACRS on whatever is left.
A Practical Example of Class Life Value
Take a $2,000,000 apartment building with $400,000 in land, leaving $1,600,000 depreciable over 27.5 years. Straight line gives about $58,200 per year.
A cost segregation study on the same building typically reclassifies 20% to 30% of basis. Assume $400,000 moves out: $220,000 into 5-year personal property and $180,000 into 15-year land improvements. Both are bonus-eligible, so all $400,000 deducts in year one, plus $43,600 of straight line on the remaining $1,200,000.
First-year depreciation goes from $58,200 to roughly $443,600. Nothing about the building changed. The only difference is that someone did the engineering work to assign the correct class lives, which the original closing statement never did.
Key Takeaways
- Class life determines everything downstream: bonus eligibility, annual deduction, and recapture character on sale.
- The mid-quarter convention can silently reduce first-year deductions on assets bought early in the year because of a single Q4 purchase.
- Short-term rentals are usually 39-year nonresidential property, not 27.5-year residential.
- Electing out of Section 163(j) forces ADS and eliminates bonus depreciation on your real property, which is often a bad trade.
- Cost segregation does not create deductions, it assigns correct class lives that were never assigned at purchase.
Frequently Asked Questions
What are the MACRS recovery periods for 2026?
They are unchanged for 2026: 3, 5, 7, 10, 15, and 20 years for personal property and land improvements, 27.5 years for residential rental property, and 39 years for nonresidential real property. Short-term rentals with an average stay of seven days or less are generally nonresidential and use 39 years.
What is the mid-quarter convention and when does it apply?
If more than 40% of the total basis of personal property placed in service during the year falls in the fourth quarter, the mid-quarter convention replaces the half-year convention for every asset placed in service that year. Each asset is then treated as placed in service at the midpoint of its actual quarter, which reduces the first-year deduction on assets acquired earlier in the year.
Is a short-term rental depreciated over 27.5 or 39 years?
Generally 39 years. Residential rental property requires that 80% or more of gross rental income come from dwelling units, and a unit is not a dwelling unit if more than half its use is on a transient basis. A property with an average stay of seven days or less is typically nonresidential real property at 39 years.
When am I required to use ADS instead of GDS?
ADS is mandatory for property used predominantly outside the US, tax-exempt use property, property financed with tax-exempt bonds, listed property with 50% or less qualified business use, and property held by an electing real property trade or business under Section 163(j)(7). ADS property is not eligible for bonus depreciation.
Does 100% bonus depreciation replace MACRS?
No. Bonus depreciation deducts the basis in year one for property with a 20-year or shorter recovery period, but MACRS still determines the class life that makes property bonus-eligible, still governs property you elect out of bonus for, and still drives the recapture calculation when you sell.
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