MACRS vs Straight-Line Depreciation: Which to Use

If your company buys equipment, computers, furniture, or other assets it will use for more than a year, you have to spread their cost over time, and the method you use determines how much you deduct each year.

For federal income tax, the choice is mostly made for you. MACRS (the Modified Accelerated Cost Recovery System) is the required depreciation system for most tangible business property placed in service in the US. Straight-line is not an alternative to MACRS on a tax return. It is one of the methods available within MACRS, and it is the standard method for financial statements prepared under GAAP. Most companies use both: MACRS on the tax return, and straight-line in the books. And for many purchases today, neither schedule matters much on the federal return, because 100% bonus depreciation or Section 179 lets the company deduct the full cost in the first year.

Below is how each method works, where the choice is real, and how the two schedules fit together.

MACRS is the tax system, not just a method

MACRS assigns every type of tangible property a recovery period and a method. Within its general system (GDS), the common recovery periods are:

3-year property. A narrow category, including certain tools and tractor units.

5-year property. Computers and peripheral equipment, office machinery such as copiers, cars, and light trucks.

7-year property. Office furniture and fixtures, and property without another assigned class.

15-year property. Land improvements such as fences and parking lots, and qualified improvement property to the interior of nonresidential buildings.

27.5-year and 39-year property. Residential rental property and nonresidential real property, respectively.

The default method for 3-, 5-, 7-, and 10-year property is the 200% declining balance method, which switches to straight-line when straight-line produces a larger deduction. Fifteen- and 20-year property uses 150% declining balance. Real property must use straight-line.

MACRS also applies a convention that sets how much of the first year counts. Most personal property uses the half-year convention, which treats an asset as placed in service at the midpoint of the year regardless of the actual date. If more than 40% of the year's depreciable property is placed in service in the last quarter, the mid-quarter convention applies instead. Real property uses the mid-month convention.

Straight-line spreads cost evenly, and GAAP uses it by default

Straight-line depreciation divides an asset's cost, less any salvage value, evenly across its useful life. A $10,000 asset with a five-year life and no salvage value is depreciated at $2,000 a year.

It is the most common method in financial statements because it matches the expense to the period in which the asset is used, and it is simple to explain to investors, lenders, and auditors. Under GAAP, the company sets its own useful lives based on how long it expects to use the asset, which may differ from the MACRS recovery period.

On a tax return, straight-line appears in three ways:

It is required for some assets. Buildings are depreciated straight-line under MACRS. Off-the-shelf software is depreciated straight-line over 36 months when it is not expensed. Most acquired intangibles, such as goodwill and customer lists, are amortized straight-line over 15 years.

It can be elected. A company can elect MACRS straight-line instead of the default declining balance method. The election applies to every asset in that recovery class placed in service that year, not to individual assets.

It is required under ADS. The Alternative Depreciation System uses straight-line over longer recovery periods. It applies to listed property used 50% or less for business, property used predominantly outside the US, and certain other categories.

The difference is in timing, not the total

Both methods deduct the same total cost over an asset's life. What changes is when the deductions arrive.

For a $10,000 computer system (5-year property) placed in service mid-year, without bonus depreciation or Section 179:

The GAAP column assumes a full year of depreciation in year one for simplicity. In practice, many companies depreciate monthly from the month the asset is placed in service.

The default MACRS schedule front-loads deductions, which reduces taxable income sooner. The straight-line election defers them. Because of the half-year convention, both MACRS schedules for 5-year property run into a sixth tax year.

Bonus depreciation and Section 179 often make the schedule moot

Two provisions let a company deduct the full cost of qualifying property in the year it is placed in service, ahead of any MACRS schedule.

100% bonus depreciation. The One Big Beautiful Bill Act, signed in July 2025, permanently restored 100% bonus depreciation for qualifying property acquired after January 19, 2025. Most new and used tangible property with a recovery period of 20 years or less qualifies, along with off-the-shelf software and qualified improvement property. Bonus depreciation has no dollar cap and can create or increase a net operating loss. It applies automatically unless the company elects out, and the election out is made by recovery class.

Section 179 expensing. For tax years beginning in 2026, a company can expense up to $2,560,000 of qualifying property, with the limit reduced dollar for dollar once total qualifying property placed in service exceeds $4,090,000. Section 179 is elected asset by asset and cannot exceed the company's taxable business income for the year. Disallowed amounts carry forward.

Section 179 is applied first, bonus depreciation second, and regular MACRS depreciation applies to whatever basis remains. All of it is reported on Form 4562.

Separately, the de minimis safe harbor lets a company expense items costing $2,500 or less per invoice or item ($5,000 for companies with audited financial statements) without capitalizing them at all, if it elects the safe harbor and follows a consistent policy.

Faster isn't always better for every company

Accelerating deductions is valuable when the company has taxable income to offset. When it does not, the case for speed weakens.

Companies with ongoing losses. An early-stage company already operating at a loss gains no immediate tax benefit from a larger deduction. The extra deduction increases the net operating loss carried forward. Federal NOLs arising after 2017 can offset only 80% of taxable income in a future year, so a deduction taken now may be worth less later than the same deduction taken in a profitable year through a slower schedule.

Companies expecting higher income later. A company that expects to be profitable in coming years may prefer to spread deductions into those years by electing out of bonus depreciation for a class or electing MACRS straight-line.

State returns. Several states, including California, do not conform to federal bonus depreciation, and some limit Section 179 below the federal amount. A company that takes 100% bonus depreciation federally still maintains a separate depreciation schedule for those states.

Assets that may be sold soon. Depreciation claimed on equipment reduces its tax basis. When equipment is sold, gain up to the amount of prior depreciation is generally recaptured as ordinary income. Expensing an asset the company expects to sell within a short period mostly moves income between years.

Most companies keep two schedules

Because GAAP and the tax code have different objectives, most companies maintain a book depreciation schedule (usually straight-line over the company's estimated useful lives) and a tax depreciation schedule (MACRS, with bonus depreciation and Section 179 applied). The difference between them is a temporary book-tax difference that reverses over the asset's life. Companies that report under GAAP record it as a deferred tax liability.

Using straight-line in the books does not require using it on the tax return, and taking 100% bonus depreciation on the return does not require expensing the asset in the books. A company that is raising capital, borrowing against its financials, or preparing for an audit generally wants book depreciation that reflects actual asset use, regardless of what the tax return shows.

We maintain both schedules, and reconcile the book-tax difference each year, for companies on Inkle Books and Inkle Tax.

The bottom line

MACRS and straight-line are not competing choices so much as tools for different records: MACRS is the federal tax system, and straight-line is the standard for financial statements and an elective method within MACRS. With 100% bonus depreciation now permanent and Section 179 limits above $2.5 million, the more useful question for most companies is whether to accelerate deductions at all, which depends on whether the company has taxable income to offset now, what it expects later, and which states it files in. Keep the book and tax schedules separate, and make the acceleration decision deliberately each year by asset class.

This post is general information, not tax or accounting advice. The right depreciation treatment depends on your company's assets, income, and filing states, so confirm the details for your company before you act on them.

Frequently asked questions

Can I use straight-line depreciation instead of MACRS on my tax return?

For most tangible property, you use MACRS on the federal tax return, but you can elect the MACRS straight-line method instead of the default declining balance method. The election applies to all property in the same recovery class placed in service that year. Some assets, such as buildings, are required to use straight-line under MACRS.

Is MACRS required for GAAP financial statements?

No. GAAP requires a method that reflects how the asset's value is used over its estimated useful life, and most companies use straight-line. MACRS is a tax system and is generally not acceptable as GAAP depreciation unless the difference is immaterial.

Does bonus depreciation replace MACRS?

Bonus depreciation is part of the MACRS framework. It lets a company deduct the full cost of qualifying property in the first year, and any basis not covered by bonus depreciation or Section 179 is then depreciated under the regular MACRS schedule. For property acquired after January 19, 2025, the bonus rate is 100%.

What is the difference between Section 179 and bonus depreciation?

Section 179 is elected asset by asset, has an annual dollar limit and phase-out, and cannot exceed the company's taxable business income. Bonus depreciation applies by default to all qualifying property, has no dollar limit, and can create a net operating loss. Section 179 is applied first.

What depreciation method should a startup use?

Most startups use straight-line in their books and MACRS, often with 100% bonus depreciation, on their federal tax return. A startup with ongoing losses may get little immediate benefit from accelerating deductions, since the deduction increases its net operating loss carryforward instead of reducing current tax.

Which MACRS recovery period applies to computers and laptops?

Computers and peripheral equipment are 5-year property under MACRS. Off-the-shelf software is separately depreciated straight-line over 36 months, though both generally qualify for 100% bonus depreciation and Section 179.