MACRS Half-Year Convention Depreciation Rate Tables

The Modified Accelerated Cost Recovery System (MACRS) is the required depreciation method for most tangible property. This article focuses on the half-year convention, the most common method under MACRS, which dictates the depreciation for an asset’s first and last years of service.

Determining When the Half-Year Convention Applies

The half-year convention treats property as having been placed in service in the middle of the tax year, regardless of the actual date it was put into use. This means for the first year, you can claim six months of depreciation. This convention applies to most business property, such as vehicles, equipment, and furniture.

However, you must apply the “40% test” each year. If the total cost basis of all MACRS property placed in service during the final three months of your tax year exceeds 40% of the total cost basis of all property placed in service during the entire year, you cannot use the half-year convention. You must instead use the mid-quarter convention for all property placed in service that year.

When performing the 40% test, certain types of property are excluded from the calculation. You do not include residential rental property, nonresidential real property, or any assets that are both placed in service and disposed of within the same tax year.

The MACRS Half-Year Convention Depreciation Tables

The Internal Revenue Service (IRS) provides percentage tables in Publication 946, “How to Depreciate Property,” to simplify MACRS depreciation. For assets subject to the half-year convention, these tables provide a predetermined rate for each year of the asset’s recovery period. The tables are organized by property class, which corresponds to the recovery period.

3-Year Property (Examples: certain tools, some horses)

• Year 1: 33.33%
• Year 2: 44.45%
• Year 3: 14.81%
• Year 4: 7.41%

5-Year Property (Examples: computers, vehicles, office machinery)

• Year 1: 20.00%
• Year 2: 32.00%
• Year 3: 19.20%
• Year 4: 11.52%
• Year 5: 11.52%
• Year 6: 5.76%

7-Year Property (Examples: office furniture, fixtures, most other business equipment)

• Year 1: 14.29%
• Year 2: 24.49%
• Year 3: 17.49%
• Year 4: 12.49%
• Year 5: 8.93%
• Year 6: 8.92%
• Year 7: 8.93%
• Year 8: 4.46%

Calculating Depreciation Using the Tables

To calculate your annual depreciation deduction, you must first determine the asset’s depreciable basis. This is generally its cost, including any freight, installation, and testing fees. The depreciable basis for MACRS is the asset’s cost after subtracting any Section 179 and bonus depreciation taken.

One major deduction is the special depreciation allowance, often called bonus depreciation. For qualified property placed in service in 2025, businesses can take a 40% bonus depreciation deduction. This allowance is taken after any Section 179 deduction but before calculating regular MACRS depreciation.

Another common deduction is the Section 179 expense election, which allows a business to treat the cost of qualifying property as an expense and deduct it in the year the property is placed in service. For 2025, the maximum deduction is $1,250,000. This deduction begins to phase out if the total cost of qualifying property placed in service during the year exceeds $3,130,000.

Consider an example of a business purchasing a piece of office furniture for $10,000. Office furniture is classified as 7-year property. Assuming the business chooses not to take any Section 179 or bonus depreciation on this asset and the half-year convention applies, the depreciation calculation for the first year would be based on the 14.29% rate. The deduction would be $1,429 ($10,000 x 0.1429). For the second year, the deduction would be $2,449 ($10,000 x 0.2449).

Depreciation in the Year of Asset Disposal

The half-year convention also dictates the amount of depreciation claimed in the year an asset is sold before its full recovery period ends. Just as an asset is treated as being in service for half the year when acquired, it is also treated as being in service for half the year when disposed of. This means you can claim one-half of the depreciation that would have been allowed for a full year.

To calculate the depreciation for the year of disposal, first determine the full depreciation amount for that year. You find the appropriate percentage from the MACRS table and multiply it by the asset’s original depreciable basis. Then, you take that resulting annual depreciation amount and divide it by two.

For instance, let’s return to the $10,000 piece of 7-year property from the previous example. If the business sells the furniture during the fourth year of its recovery period, you would first find the normal depreciation. The Year 4 rate for 7-year property is 12.49%, resulting in a full-year depreciation of $1,249 ($10,000 x 0.1249). Because the asset was disposed of during the year, you would claim one-half of this amount, which is $624.50, as the final depreciation deduction for that asset.