How to Find the Depreciation Rate

Finding the right depreciation rate feels like it should be simple, but it’s one of those accounting tasks where small details can lead to big differences in tax liability. The "rate" isn't a single number you can look up in a master list; it's the result of a system designed to reflect how an asset loses value over time for tax purposes. This guide breaks down exactly how to determine the correct asset life, apply the right accounting conventions, and use the official IRS tables to find the precise depreciation rate for your assets.

Understanding the Building Blocks of Depreciation

Before you can find a specific percentage in an IRS table, you need to understand the three components that determine that rate: the method, the recovery period, and the convention. For U.S. tax purposes, all three of these are defined by a system called the Modified Accelerated Cost Recovery System (MACRS).

MACRS is the mandatory depreciation system for most tangible property placed in service after 1986. It determines the "rate" by providing pre-calculated percentages in comprehensive tables. To use those tables, you first need to establish the following for your asset:

• Recovery Period: This is the IRS-defined number of years over which you will depreciate the asset. It’s what most people think of as the asset's "useful life."
• Convention: This is a set of rules that determines the period of time for which you can claim depreciation in both the year you acquire the asset and the year you dispose of it.
• Depreciation Method: MACRS primarily uses two methods under its General Depreciation System (GDS): the 200% declining balance method for shorter-lived assets (like equipment) and the straight-line method for longer-lived assets (like real estate).

Once you figure out these three things, finding your rate is just a matter of locating the right spot in a table.

Step 1: Determine the Asset’s Recovery Period (Useful Life)

Your first job is to correctly classify your asset to determine its recovery period. The IRS groups all business assets into specific classes with pre-defined lifespans. Guessing or using a book-value useful life will lead to an incorrect calculation. You must use the IRS-prescribed recovery period.

The full list can be found in an appendix of IRS Publication 946, How to Depreciate Property, but here are the most common asset classes you will encounter under the General Depreciation System (GDS):

• 3-Year Property: Includes assets like certain tractors, specific manufacturing tools, and some racehorses. This class is less common for most businesses.
• 5-Year Property: A very common category. This includes automobiles, taxis, buses, trucks, computers and peripherals, office machinery (like copiers and calculators), and equipment used in research and experimentation.
• 7-Year Property: Another major category. This is the default class for any property not assigned elsewhere and includes office furniture and fixtures (desks, cabinets, chairs).
• 15-Year Property: Includes specific improvements made directly to land, such as fences, roads, and landscape features (known as qualified improvement property).
• 27.5-Year Property: Specifically for residential rental property, like apartment buildings or duplexes. Note that the land itself is never depreciable.
• 39-Year Property: Applies to nonresidential real property, such as office buildings, warehouses, and retail stores.

You may also encounter the Alternative Depreciation System (ADS), which requires straight-line depreciation over generally longer recovery periods. You must use ADS for certain property, such as assets used mainly outside the United States, tax-exempt use property, or if you elect out of GDS. For example, under ADS, 5-year property has a 5-year recovery period, but 7-year property (like office furniture) has a 10-year recovery period.

Step 2: Apply the Correct Convention

Next, you must determine which timing convention to apply. This rule determines how much of a full year's depreciation you can claim in the year you start using the asset. It prevents someone from buying a machine on December 30th and claiming a full twelve months of depreciation. There are three conventions under MACRS:

Half-Year Convention

This is the default and most commonly used convention for all property except residential rental and nonresidential real property. It assumes that you placed the asset in service in the middle of the tax year, regardless of whether you bought it in January or December. This means you will take one-half of a full year's depreciation in the first year.

Mid-Quarter Convention

This convention is a special rule designed to prevent businesses from loading up on asset purchases late in the year to maximize depreciation deductions. You must use the mid-quarter convention for all personal property placed in service during the year if the cost of assets placed in service during the last three months (the fourth quarter) is more than 40% of the total cost of all personal property you placed in service for the entire year.

If triggered, you must group all assets by the quarter they were placed in service. For example, an asset placed in service in the first quarter gets 10.5 months of depreciation, while one from the fourth quarter only gets 1.5 months.

Example: A consulting firm buys two assets during the year:

• A $10,000 server (5-year property) in March (Q1).
• $15,000 of office furniture (7-year property) in November (Q4).

The total cost of assets is $25,000. The cost of assets placed in service in Q4 ($15,000) is 60% of the total ($15,000 / $25,000), which is more than 40%. Therefore, the mid-quarter convention must be applied to both assets.

Mid-Month Convention

This is the simplest convention. It is used only for residential rental property and nonresidential real property. It treats all property placed in service during any month as being placed in service in the middle of that month. You get one-half a month's depreciation for the month you start using the building.

Step 3: Find Your Depreciation Rate Using IRS Tables

Once you’ve identified your asset's recovery period (e.g., 7-year property) and the correct convention (e.g., half-year), you're ready to find your rate. The IRS provides official tables in the appendices of Publication 946.

Here’s how to use them with an example:

Scenario: You purchase $30,000 of office furniture on May 15th for your business. It's the only asset you purchase all year.

1. Determine Recovery Period: Office furniture is 7-year property under GDS.
2. Determine Convention: Since it's personal property and you didn't place more than 40% of your assets in the fourth quarter, you use the default Half-Year Convention.
3. Find the IRS Table: Go to Publication 946 and look for Appendix A. Table A-1 is for the Half-Year Convention.
4. Find the Rate: In Table A-1, go to the "7-yr." column. For the first year ("Year 1" row), the percentage rate is 14.29%.
5. Calculate Depreciation: $30,000 (Cost Basis) × 14.29% = $4,287.

You would deduct $4,287 in depreciation for Year 1. In Year 2, you'd use the rate from the second row of the 7-year column (24.49%), and so on, until the asset is fully depreciated.

Now, let's see how much the mid-quarter convention changes things using the same $30,000 furniture purchase, but assume it was purchased on October 5th (and was the only asset purchased all year).

1. Recovery Period: Still 7-year property.
2. Convention: 100% of assets were placed in service in the fourth quarter. You must use the Mid-Quarter Convention.
3. Table: Use Table A-2, which is for property subject to the Mid-Quarter Convention placed in service in the fourth quarter.
4. Rate: In Table A-2, find the column for the 7-year recovery period. The rate for Year 1 is 3.57%.
5. Calculation: $30,000 × 3.57% = $1,071.

As you can see, correctly applying the convention is vital, as it causes a significant difference in the first-year deduction.

A Note on Section 179 and Bonus Depreciation

Before you run these MACRS calculations, remember there are two powerful deductions that can accelerate cost recovery even faster and must be considered first.

The Section 179 deduction is an election that allows you to deduct the full purchase price of qualifying property in the first year. This is not technically depreciation, but an expense election. There are annual limits on the total amount you can deduct and an investment limit.

Bonus depreciation is an additional first-year allowance you can claim for qualified new and used property. This is automatic for qualifying property unless the taxpayer elects out. Note that the bonus percentage is phasing out: it was 100% before 2023, is 80% for 2023, 60% for 2024, and so on, unless lawmakers change the rules.

The standard process is to apply Section 179 first, then bonus depreciation on any remaining basis, and then finally calculate MACRS depreciation on what's left over.

Final Thoughts

Pinpointing the correct depreciation rate for taxes is a systematic process of classifying your asset to find its recovery period, selecting the proper convention based on timing rules, and then referencing the right IRS table to find the percentage. Mastering this process ensures your depreciation schedules are accurate and defensible.

While locating these percentages in the IRS tables is usually direct, questions around asset classifications, what qualifies for bonus depreciation, or state-specific rules can add layers of complexity. When we face these ambiguous situations, we use our tool Feather AI to get clear answers quickly. It allows professionals to ask a question like "What is the MACRS recovery period for landscape shrubbery?" and get an instant, citation-backed answer from authoritative sources, saving valuable research time for more strategic client work.