Depreciation is a way to deduct the cost of a business or rental asset over time instead of all at once. Because assets wear out or become outdated, the IRS lets you spread the deduction over several years.
🧾 Why It Matters
Depreciation helps taxpayers:
- Recover the cost of items used for business or rental income
- Lower taxable income over multiple years
- Deduct expenses in the years the asset is actually used
🏢 Common Depreciable Assets
- Buildings and rental property
- Business equipment and machinery
- Furniture and fixtures
- Vehicles used for business
- Computers and software
Personal‑use items are not depreciated.
📅 Depreciation Methods
Straight‑Line Depreciation
- Same deduction each year over the asset’s useful life
- Simple and easy to understand
MACRS (Modified Accelerated Cost Recovery System)
- The IRS’s standard method for most property
- Larger deductions in the earlier years
Section 179 Deduction
- Lets you deduct all or part of the cost in one year
- Limits apply, and not all assets qualify
Bonus Depreciation
- Allows an immediate deduction of a percentage of the asset’s cost
- Percentage can change by tax year
🛠️ Example
You buy a business computer for $2,000 with a 5‑year life:
- Straight‑line depreciation: $400 per year
- MACRS depreciation: Bigger deduction in Year 1, smaller deductions in later years