Introduction
Depreciation is a critical tax deduction for businesses, allowing them to recover the cost of assets over time. The Internal Revenue Code (IRC) §167 and §168 define depreciation rules, specifying how businesses can deduct the cost of tangible property.
In 2024, the IRS continues to offer Modified Accelerated Cost Recovery System (MACRS), Section 179 deductions, and Bonus Depreciation for various asset types. This blog provides the latest IRS depreciation rates, methods, and compliance steps for taxpayers.
What is Depreciation?
Depreciation allows businesses to deduct the cost of tangible property over its useful life. The IRS Publication 946 explains the types of assets eligible for depreciation, including:
- Buildings & Real Estate Improvements
- Machinery & Equipment
- Vehicles & Business Use Assets
- omputers & Software
Depreciation does not apply to land, inventory, or personal-use property.
IRS Depreciation Methods & Tax Code References
The IRS provides three primary methods for depreciation:
A. Straight-Line Depreciation (IRC §167)
- Equal deduction every year.
- Used for residential rental property (27.5 years) and commercial buildings (39 years).
B. MACRS (Modified Accelerated Cost Recovery System) (IRC §168)
- The most common IRS depreciation method.
- Uses General Depreciation System (GDS) and Alternative Depreciation System (ADS).
C. Section 179 Deduction (IRC §179)
- Immediate deduction for small businesses.
- Limited to $1,220,000 in 2024.
D. Bonus Depreciation (IRC §168(k))
- Allows businesses to deduct a percentage of an asset’s cost in the first year.
- 2024 Rate: 60% (phasing out from 100% in prior years).
IRS Depreciation Rates for the 2024 Tax Year
The IRS assigns different depreciation rates based on asset type:
| Asset Type | Recovery Period (GDS) | Depreciation Rate (MACRS 200% DB) |
|---|---|---|
| Office Equipment | 5 years | 20% first year |
| Computers & Peripherals | 5 years | 20% first year |
| Machinery & Tools | 7 years | 14.29% first year |
| Residential Rental Property | 27.5 years | 3.636% per year |
| Commercial Buildings | 39 years | 2.564% per year |
| Vehicles (Business Use) | 5 years | 20% first year (subject to IRS limits) |
Section 179 Deduction Limits for 2024
The Section 179 deduction allows businesses to deduct the full cost of qualifying assets in the year of purchase.
- Maximum Deduction Limit: $1,220,000
- Phase-out Threshold: $3,050,000
- Qualifying Assets: Equipment, furniture, off-the-shelf software, certain vehicles
Example: If a business purchases $50,000 worth of eligible equipment, they can deduct 100% ($50,000) under Section 179.
Bonus Depreciation Rules for 2024
Bonus depreciation allows businesses to take a first-year deduction on new and used assets.
- 2024 Bonus Depreciation Rate: 60%
- Eligible Property: Equipment, machinery, qualified leasehold improvements
- No Dollar Limit (unlike Section 179)
MACRS Depreciation Table for 2024
MACRS applies a declining balance method before switching to straight-line depreciation.
| Year | 3-Year Property | 5-Year Property | 7-Year Property |
|---|---|---|---|
| 1 | 33.33% | 20.00% | 14.29% |
| 2 | 44.45% | 32.00% | 24.49% |
| 3 | 14.81% | 19.20% | 17.49% |
| 4 | 7.41% | 11.52% | 12.49% |
Example Calculation of Depreciation
Example: A business purchases a $50,000 machine in January 2024.
Under Section 179, the full $50,000 can be deducted in Year 1.
Under MACRS (5-year property, 200% DB), Year 1 depreciation is:
- $50,000 × 20% = $10,000 deduction.
- Under Bonus Depreciation, 60% can be deducted upfront:
- $50,000 × 60% = $30,000 deduction.
Step-by-Step Guide to Claim Depreciation
Determine Eligibility – Confirm the asset qualifies under IRC §167 or §168.
Choose a Depreciation Method – Select Straight-Line, MACRS, Section 179, or Bonus Depreciation.
Use IRS Form 4562 – Report depreciation deductions on Form 4562.
Apply Any Limits – Ensure vehicles, listed property, and Section 179 phase-out limits are met.
Keep Records – Maintain invoices, asset descriptions, and usage logs.
Conclusion
Depreciation is a powerful tax tool that helps businesses recover asset costs. Understanding IRS depreciation rates, Section 179, and Bonus Depreciation can maximize deductions and reduce tax liability.
Need help with depreciation calculations? Schedule a meeting with Anshul Goyal, CPA EA FCA, a licensed tax expert, to ensure accurate IRS compliance.
FAQs
1. What is the maximum Section 179 deduction for 2024?
The maximum Section 179 deduction is $1,220,000, with a phase-out beginning at $3,050,000.
2.What IRS form do I use to claim depreciation?
Use IRS Form 4562 to report depreciation expenses.
3. Is bonus depreciation available in 2024?
Yes, but the bonus depreciation rate has decreased to 60% in 2024 (previously 100%).
4. Can I depreciate my personal car used for business?
Yes, but only for the business-use percentage. Vehicles are subject to luxury auto limits under IRC §280F.
5. What happens if I sell an asset before it’s fully depreciated?
You must recapture depreciation as ordinary income under IRC §1245 or §1250 rules.
About Our CPA
Anshul Goyal, CPA EA FCA is a licensed Certified Public Accountant (CPA) in the United States, an IRS Enrolled Agent (EA), and a cross-border tax expert. He specializes in IRS compliance, tax litigation, and advising Indian expatriates and U.S. businesses on tax strategies.
Schedule a consultation today to optimize your tax deductions!