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 Because assets wear out or become outdated, the IRS lets you spread the deduction over several years.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