# What Is Depreciation?

Depreciation is the tax deduction that lets a business recover the cost of equipment, vehicles and buildings over the years it uses them, instead of deducting the full price at once. Most U.S. business property is depreciated under MACRS, which assigns each asset a recovery period, such as five years for trucks and construction equipment.

## Key takeaways

- Depreciation spreads an asset's cost over its IRS recovery period. Most contractor trucks, tools and construction equipment are 5-year property; office furniture is 7-year.
- MACRS front-loads the deduction. A 5-year asset under the half-year convention is written off at 20%, 32%, 19.2%, 11.52%, 11.52% and 5.76% over six tax years.
- Section 179 and 100% bonus depreciation let you deduct most purchases in year one instead; regular depreciation is what's left when you don't use them.
- Items under $2,500 per invoice or item can often be expensed right away under the de minimis safe harbor.
- Buy too much in the last quarter and the mid-quarter convention can shrink your first-year deduction.

> **Sources and year**
>
> Rules and rates here come from IRS Publication 946 (2025 edition, the latest, which includes What's New for 2026) and Publication 334, checked October 12, 2026. General information, not tax advice. Your CPA or enrolled agent should set up your depreciation schedule.

## How depreciation works

When you buy a box of fittings for a job, the cost is an expense that year. When you buy a $45,000 truck, the IRS sees an asset that will earn money for years, so you generally recover its cost bit by bit. Each year's slice is a depreciation deduction on your Schedule C (through Form 4562), and it lowers both income tax and [self-employment tax](https://www.brix.so/learn/self-employment-tax).

You can depreciate property you own, use in your business, and that has a useful life of more than one year. Land never depreciates. Inventory and materials you install for customers aren't depreciated either; they're job costs.

## What are the MACRS recovery periods?

The Modified Accelerated Cost Recovery System (MACRS) puts every asset in a class with a set recovery period. Here are the classes contractors run into most:

**Common MACRS recovery periods for contractor assets (GDS)**

| Recovery period | Examples |
| --- | --- |
| 5 years | Cars, trucks, vans, trailers; computers and office machines; assets used in construction by general and specialty trade contractors (IRS asset class 15.0), such as excavators, skid steers, compressors and power tools |
| 7 years | Office furniture and fixtures (desks, files, safes); property with no assigned class life |
| 15 years | Qualified improvement property (interior improvements to nonresidential buildings); land improvements such as fences, sidewalks and paving |
| 27.5 years | Residential rental buildings |
| 39 years | Nonresidential buildings, such as your shop or office |

_Source: IRS Publication 946 (2025), chapter 4 and Appendix B (Table B-2, asset class 15.0). Your CPA assigns the class for each specific asset._

## How MACRS depreciation is calculated

**Annual MACRS depreciation**

```
Depreciation for the year = Depreciable basis × Business-use % × Table rate for that year
```

Where:
- Depreciable basis = cost, including sales tax, delivery and installation, minus any Section 179 or bonus depreciation already taken
- Business-use % = share of use for the business; listed property such as vehicles used 50% or less for business must use slower straight-line ADS instead
- Table rate = from IRS Pub 946 Table A-1 (half-year convention) or the mid-quarter tables

**MACRS rates, half-year convention (Pub 946 Table A-1)**

| Year | 5-year property | 7-year property |
| --- | --- | --- |
| 1 | 20.00% | 14.29% |
| 2 | 32.00% | 24.49% |
| 3 | 19.20% | 17.49% |
| 4 | 11.52% | 12.49% |
| 5 | 11.52% | 8.93% |
| 6 | 5.76% | 8.92% |
| 7 |  | 8.93% |
| 8 |  | 4.46% |

_Source: IRS Publication 946 (2025), Appendix A, Table A-1 (200% declining balance switching to straight line). A 5-year asset takes six tax years because the half-year convention gives you half a year at the start and the end._

> **Example: a plumber's mini excavator**
>
> This is an illustrative example. A plumbing contractor buys a $40,000 mini excavator in May 2026 for sewer line work and uses it 100% in the business. It's 5-year property. Say her CPA elects out of bonus depreciation and doesn't use Section 179 for this asset (maybe her profit is low this year and she expects higher brackets later).
>
> Depreciation: 2026, $8,000 (20%); 2027, $12,800 (32%); 2028, $7,680 (19.2%); 2029, $4,608 (11.52%); 2030, $4,608 (11.52%); 2031, $2,304 (5.76%). Total: **$40,000**.
>
> With 100% [bonus depreciation](https://www.brix.so/learn/bonus-depreciation) instead, she would deduct the full $40,000 in 2026.

## Half-year vs. mid-quarter convention

MACRS normally assumes everything you bought during the year was placed in service at mid-year: the **half-year convention**. But if more than 40% of the depreciable basis of the equipment you placed in service during the year landed in the last three months, you must use the **mid-quarter convention**, which gives a much smaller first-year deduction for fourth-quarter purchases.

That's why December truck buying can backfire if you're relying on regular depreciation. With Section 179 or 100% bonus, the convention matters much less, because most of the cost is deducted in year one anyway.

## Depreciation vs. Section 179 vs. bonus depreciation

**Three ways to recover the cost of the same asset (2026)**

|  | Regular MACRS depreciation | Section 179 | Bonus depreciation |
| --- | --- | --- | --- |
| When you deduct | Over the recovery period | Year one, up to limits | Year one, 100% for property acquired and placed in service after Jan. 19, 2025 |
| 2026 limits | None | $2,560,000; phases out above $4,090,000 | No dollar cap |
| Income limit | None | Limited to business income | None |
| Best when | You want deductions spread into future, higher-income years | You want to pick exact amounts | You want the most deduction now, even a loss |

_Sources: IRS Publication 946 (2025); Rev. Proc. 2025-32; Notice 2026-11. See the [Section 179 deduction](https://www.brix.so/learn/section-179-deduction) page for vehicle limits._

## When you can skip depreciation: the de minimis safe harbor

If you elect the **de minimis safe harbor** on your return each year, you can deduct tangible property right away instead of capitalizing it, up to **$2,500 per item or invoice** if you don't have an applicable financial statement (audited financials), or $5,000 if you do. You must also expense those items in your own books. For most contractors this is how a $900 impact driver kit or a $1,800 laptop gets written off in the year you buy it.

## Depreciation of vehicles and the mileage rate

If you deduct a vehicle using the [standard mileage rate](https://www.brix.so/learn/mileage-deduction-for-contractors), depreciation is built into the rate. The IRS says the part of the 2026 business rate treated as depreciation is **35 cents a mile**, and you reduce the vehicle's basis by that amount for each business mile. If you use actual expenses instead, you depreciate the vehicle directly, subject to the passenger auto caps for vehicles of 6,000 lbs GVWR or less.

## Depreciation by trade

**Assets each trade typically depreciates**

| Trade | Typical depreciable assets | Planning note |
| --- | --- | --- |
| HVAC | Service vans, recovery and evacuation equipment, shop racks | Many items fall under $2,500 and can be expensed via de minimis. |
| Plumbing | Jetters, camera systems, trenchers, trucks | Big-ticket items are 5-year property; bonus or Section 179 usually applies. |
| Roofing | Trailers, lifts, crew trucks, compressors | Your own shop's roof is 39-year property unless you elect Section 179 for nonresidential roofs. |
| Electrical | Bucket trucks, pullers, test equipment | Keep model, serial number and in-service date for each tool over your de minimis limit. |
| Landscaping | Mowers, skid steers, trailers, irrigation equipment | Fall purchases can trigger the mid-quarter convention. |
| Cleaning | Extractors, pressure washers, vans | Cheaper equipment is often expensed rather than depreciated. |

_Illustrative examples. Your CPA decides each asset's treatment._

## What happens when you sell a depreciated asset?

Depreciation lowers the asset's tax basis. When you sell or trade it in, the gain up to the depreciation you took is generally taxed as ordinary income, called **depreciation recapture**. If you fully expensed a $60,000 truck and sell it for $35,000, most or all of that $35,000 is taxable. Plan trade-ins with your CPA.

## Common mistakes

- **Not keeping an asset list.** Record cost, date placed in service, business-use % and serial number for every item above your de minimis limit.
- **Expensing big items with no election in place.** Without Section 179, bonus or the de minimis safe harbor, a $10,000 machine can't simply be expensed.
- **Forgetting depreciation you were allowed to take.** The IRS reduces basis by the depreciation *allowable*, even if you didn't claim it.
- **Mixing personal use.** Personal use reduces the deductible share and, for vehicles, can disqualify accelerated methods.

BRIX keeps equipment and tool purchases categorized and synced to QuickBooks with the date and cost, and tracks what's on the truck and in the warehouse, so building the asset list your CPA depreciates from takes minutes. BRIX doesn't calculate depreciation for your return, file taxes or give tax advice.

- [Bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes): Keeps expenses categorized, tracks 1099 subcontractors and sales tax, and reminds you of quarterly estimated tax dates. BRIX does not file taxes or give tax advice.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.
- [Inventory and materials](https://www.brix.so/#use-cases): Tracks what is on the truck and in the warehouse and what needs reordering.

See the [contractor tax deductions list](https://www.brix.so/learn/contractor-tax-deductions-list), the [contractor taxes guide](https://www.brix.so/guides/contractor-taxes), or how [BRIX bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes) works.

## Frequently asked questions

### How many years do you depreciate a work truck?

Trucks and vans are 5-year property under MACRS. With the half-year convention, the deduction spreads over six tax years at 20%, 32%, 19.2%, 11.52%, 11.52% and 5.76%. Many contractors instead deduct most of a truck in year one with Section 179 or bonus depreciation.

### What is the depreciation life of construction equipment?

Assets used in construction by general and specialty trade contractors are in IRS asset class 15.0, which has a 5-year GDS recovery period. That includes most excavators, skid steers, compressors and power tools used on jobs.

### Can I deduct tools instead of depreciating them?

Often, yes. Under the de minimis safe harbor you can expense items costing up to $2,500 per item or invoice if you elect it on your return and expense them in your books. Bigger tools can be expensed with Section 179 or bonus depreciation.

### What's the difference between depreciation and Section 179?

Depreciation spreads the cost over the asset's recovery period. Section 179 is an election to deduct the cost in the first year instead, up to $2,560,000 for 2026 and limited to business income. Whatever you don't expense under Section 179 or bonus is depreciated normally.

### What is depreciation recapture?

When you sell an asset for more than its depreciated tax basis, the gain up to the depreciation you took is generally taxed as ordinary income. That's recapture. Expensing an asset up front means more of a later sale price is taxable.

### Do I depreciate my truck if I use the standard mileage rate?

Not separately. Depreciation is built into the standard mileage rate. For 2026, 35 cents of each business mile is treated as depreciation and reduces the vehicle's basis, which matters when you sell it.

## Related

- [What Is the Section 179 Deduction?](https://www.brix.so/learn/section-179-deduction)
- [What Is Bonus Depreciation?](https://www.brix.so/learn/bonus-depreciation)
- [Mileage Deduction for Contractors: 2026 Rates and Rules](https://www.brix.so/learn/mileage-deduction-for-contractors)
- [Contractor Tax Deductions: The Complete List for 2026](https://www.brix.so/learn/contractor-tax-deductions-list)
- [Can a Contractor Claim the Home Office Deduction?](https://www.brix.so/learn/home-office-deduction-for-contractors)
- [Section 179 Calculator for Trucks, Vans and Equipment (2026)](https://www.brix.so/tools/section-179-calculator)
- [Taxes for Contractors: The 2026 Guide for Self-Employed Trades Owners](https://www.brix.so/guides/contractor-taxes)
- [Bookkeeping for contractors that keeps your books tax-ready all year](https://www.brix.so/features/bookkeeping-taxes)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)
- [Self-Employment Tax Calculator (2026)](https://www.brix.so/tools/self-employment-tax-calculator)

## Sources

- [IRS: Publication 946 (2025), How To Depreciate Property (Table A-1, Table B-2, conventions)](https://www.irs.gov/pub/irs-pdf/p946.pdf) (checked 2026-10-12)
- [IRS: Publication 334 (2025), Tax Guide for Small Business (de minimis safe harbor)](https://www.irs.gov/pub/irs-pdf/p334.pdf) (checked 2026-10-12)
- [IRS: Notice 2026-10, 2026 standard mileage rates (depreciation component)](https://www.irs.gov/pub/irs-drop/n-26-10.pdf) (checked 2026-10-12)
- [IRS: Notice 2026-11, 100% additional first-year depreciation](https://www.irs.gov/pub/irs-drop/n-26-11.pdf) (checked 2026-10-12)
- [IRS: Rev. Proc. 2025-32 (2026 Section 179 limits)](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf) (checked 2026-10-12)

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Written by BRIX Editorial Team. Last updated 2026-10-12. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/learn/depreciation