How to Use Tax Depreciation Tables to Calculate a Deduction

Tax depreciation allows businesses and real estate investors to recover the cost of property over its useful life by deducting a portion of its cost each year, which reduces taxable income. The Internal Revenue Service (IRS) simplifies this process with standardized depreciation tables that outline the specific percentage of an asset’s cost to deduct annually. Using these tables correctly requires gathering specific information about the asset to account for its wear and tear, deterioration, or obsolescence.

Key Information for Using Depreciation Tables

Before you can use an IRS depreciation table, you must gather several pieces of information about the property you are depreciating.

• Depreciation system: Most business and investment property is depreciated using the General Depreciation System (GDS), which is part of the Modified Accelerated Cost Recovery System (MACRS). In certain situations, you may be required to use the Alternative Depreciation System (ADS), which involves longer recovery periods.
• Property’s class life: This is the number of years over which the asset can be depreciated. The IRS categorizes assets into specific classes based on their expected useful life. Common examples include computers and light-duty trucks, which are classified as 5-year property, while office furniture and fixtures fall into the 7-year property class. Real estate has much longer recovery periods; residential rental property is depreciated over 27.5 years, and nonresidential real property is depreciated over 39 years.
• Asset’s basis: The initial basis is what you pay for the asset, including any sales tax, shipping, and installation charges. This basis is the starting point for all depreciation calculations. For real estate, the basis must be allocated between the building and the land, as land is not depreciable. You can often use property tax assessment values to find a reasonable ratio for this allocation.
• Applicable depreciation convention: A convention establishes when the recovery period begins and ends for your property. The most common is the half-year convention, which treats all property placed in service during the year as if it were placed in service in the middle of that year. The mid-quarter convention must be used if more than 40% of the total basis of personal property is placed in service during the final three months of the tax year. For real estate, the mid-month convention is always used, treating the property as placed in service in the middle of the month it was acquired.

Finding the Correct Depreciation Table and Rate

Once you have determined the depreciation system, property class, and convention, you can locate the correct depreciation table and rate. The definitive source for these tables is IRS Publication 946, “How To Depreciate Property.” This publication contains a series of tables in its appendix, each designed for specific scenarios.

The most frequently used tables are found in Appendix A of the publication. For example, Table A-1 provides the depreciation percentages for 3, 5, 7, 10, 15, and 20-year property under GDS using the half-year convention. The tables are structured with recovery years listed down the first column and property classes across the top. To find your rate, you cross-reference the current year of service for your asset with its property class column.

Imagine you need the rate for a 7-year property in its third year of service using the half-year convention. You would navigate to Table A-1, find the row for “Year 3,” and move across to the column labeled “7-year.” The percentage shown at that intersection is the rate you will apply to your asset’s basis for that year.

Separate tables exist for different conventions and property types. If you are required to use the mid-quarter convention, you would use a different table depending on the quarter the property was placed in service. Residential rental and nonresidential real property, which use the mid-month convention, have their own dedicated tables, such as Table A-6 for 27.5-year property and Table A-7a for 39-year property.

Calculating the Depreciation Deduction

The annual deduction is calculated with a simple formula: the asset’s unadjusted basis multiplied by the depreciation rate from the IRS table. This calculation is performed each year of the asset’s recovery period until the cost is fully recovered.

Consider a practical example. A company purchases new office furniture for $20,000 and places it in service in June. Office furniture is classified as 7-year property, and the half-year convention is used. Using Table A-1 from Publication 946, the depreciation rate for 7-year property in the first year is 14.29%. The first-year depreciation deduction would be $2,858 ($20,000 multiplied by 14.29%).

In the second year, the calculation continues using the rate for year two. The rate for 7-year property in the second year is 24.49%. The deduction for the second year would be $4,898 ($20,000 multiplied by 24.49%). This process is repeated annually with the corresponding percentage from the table until the entire $20,000 basis has been deducted.

A different calculation applies to real estate. An investor buys a residential rental property in April for $350,000. After allocating $70,000 of the purchase price to the non-depreciable land, the building’s basis is $280,000. Residential rentals are 27.5-year property and use the mid-month convention. Using the appropriate table (Table A-6), the rate for property placed in service in the fourth month (April) is 2.576%. The first-year depreciation deduction is $7,212.80 ($280,000 multiplied by 2.576%). For all subsequent years until the final year, the annual depreciation rate would be 3.636%.

Interaction with Other Depreciation Rules

Depreciation tables interact with other tax rules that can alter your deduction. The Section 179 deduction allows a taxpayer to expense the cost of qualifying property in the year it is placed in service instead of depreciating it. For 2025, businesses can expense up to $1,250,000 in assets, though this benefit phases out if the total property cost exceeds $3,130,000.

Another rule is bonus depreciation, which allows an additional first-year deduction on qualified property. For property placed in service during 2025, the bonus depreciation rate is 40%. This deduction is taken after any Section 179 expense but before calculating regular MACRS depreciation.

Certain assets, known as listed property, are subject to special rules. This category includes passenger automobiles and computers not used exclusively for business. If listed property is not used more than 50% for business, you must use the straight-line method under ADS. Vehicles also have annual dollar limits on depreciation that can override amounts calculated from the tables.