Free Tax Course

Depreciation Methods

There are three different types of depreciation methods used to figure depreciation deductions. Each depreciation method has its own set of rules. Generally the depreciation method you use depends on the type of property and when the property was placed in service. The rules for each depreciation method determined the useful life of the property and which depreciation method you use.

Straight Line Depreciation Methods

The straight line methods of depreciation provide equal depreciation deductions each year.

The Accelerated Depreciation Methods

The accelerated methods of depreciation such as the declining balance methods result in larger tax deductions during the early years of the recovery period.

What are the three depreciation methods?

The three depreciation methods are:

  1. The Modified Accelerated Cost Recovery System (MACRS) for most tangible depreciable property placed in service after 1986.
  2. The Accelerated Cost Recovery System (ACRS) for most depreciable property placed in service after 1980 but before 1987.
  3. Depreciation methods for property placed in service before 1981 which did not qualify for MACRS or ACRS included "any reasonable method, " including useful life, straight line and accelerated methods. One of these can be used on property you choose to exclude from MACRS or ACRS.

Both MACRS and ACRS methods provide tables that give you the depreciation rate for each year the property is in service. The rate is the percentage of the basis of the property that you can deduct in that year. For more information on depreciation and tax treatment of depreciable assets in service before 1987, see the IRS publication 534, Depreciating Property Placed in Service Before 1987.



Looking for more IRS Deductions?