Computer equipment depreciation is how you recover the cost of business computers, servers, and peripherals on your tax return over time. Under standard rules, you spread that cost over a five-year recovery period using MACRS. In practice, most businesses skip the multi-year schedule entirely: for property placed in service in 2026, 100% bonus depreciation and Section 179 expensing (with a limit of roughly $2,560,000) usually let you deduct the full cost in year one. A small purchase may not need to be depreciated at all if it falls under the de minimis safe harbor.
The Fastest Route: The De Minimis Safe Harbor
Before you calculate any depreciation, check whether the purchase is small enough to expense outright. The de minimis safe harbor election lets you immediately deduct tangible property costing up to a per-item cap instead of capitalizing it.1eCFR. 26 CFR 1.263(a)-1 – Capital Expenditures; In General
- With audited financial statements, the cap is $5,000 per invoice or per item.
- Without audited financial statements, the cap is $2,500 per invoice or per item.
A $2,200 laptop bought by a small business without audited financials qualifies and comes off the books that year. A $3,000 workstation at the same business is over the $2,500 line and has to be depreciated or expensed under one of the accelerated provisions below. The election is made each year on your return and applies per item, not as an annual pool.
What Counts as Depreciable Computer Equipment
Depreciable computer equipment includes desktops, laptops, servers, printers, monitors, routers, and networking hardware. Purchased software you own outright, as opposed to a subscription license, also qualifies. Three conditions have to hold: you own the asset, you use it to produce income, and it has a useful life longer than one year.
The useful-life test is what separates depreciable equipment from ordinary supplies. Toner, cables, and printer paper get deducted the year you buy them. A server that will last five years does not.2Internal Revenue Service. Tangible Property Final Regulations
Computers are no longer treated as “listed property,” so the extra documentation rules that used to apply before 2018 are gone. They’re depreciated like any other business equipment.3Internal Revenue Service. Tax Cuts and Jobs Act: A Comparison for Businesses
Your Starting Basis
Your depreciation basis is what you’ll apply percentages or expensing to. It’s the total cost of getting the equipment into service: purchase price plus sales tax, shipping, installation, and setup fees.
If a computer is used partly for personal purposes, only the business portion is depreciable. A laptop used 70% for business has its basis cut by 30% before any method is applied, and you need documentation of that percentage. Estimates won’t hold up if the return is examined.
Equipment trade-ins no longer adjust basis. Like-kind exchanges are limited to real property, so a trade-in is treated as two separate transactions: a sale of the old machine and a purchase of the new one.4Internal Revenue Service. Like-Kind Exchanges – Real Estate Tax Tips The new computer’s basis is what you paid; the credit for the old one is sale proceeds on that old asset and may trigger recapture.
Bonus Depreciation: The Default Fast Path
Bonus depreciation lets you deduct a percentage of qualifying property’s cost immediately. The One Big Beautiful Bill Act permanently restored 100% bonus depreciation for most qualifying business property acquired after January 19, 2025, with no sunset.5Internal Revenue Service. One, Big, Beautiful Bill Provisions For 2026, that means the full cost of qualifying computer equipment can come off in year one.
Two features make bonus depreciation the usual first choice for computers. There’s no dollar cap and no investment-level phase-out, so a business buying $50 million of equipment still gets 100%. And bonus depreciation can create or increase a net operating loss, which carries forward to offset later income. That flexibility matters in a down year.
You can opt out class by class. If you’d rather spread deductions across years because you expect higher income later, you can elect out for all 5-year property while still claiming bonus depreciation on other asset classes.
Section 179 Expensing
Section 179 also lets you deduct the full cost of qualifying equipment in the year you place it in service.6Office of the Law Revision Counsel. 26 U.S. Code 179 – Election To Expense Certain Depreciable Business Assets For 2026, the maximum deduction is approximately $2,560,000, and the deduction phases out dollar-for-dollar once total qualifying property placed in service in the year exceeds roughly $4,090,000. A business placing $4,300,000 in service would see its maximum cut by $210,000. These figures are inflation-adjusted going forward.
The catch is the taxable-income limit: Section 179 can’t create or increase a net loss. It’s capped at your total taxable income from active trades or businesses for the year. If income is $80,000 and you buy $120,000 of equipment, only $80,000 comes off under Section 179 this year. The other $40,000 carries forward.
With 100% bonus depreciation available and no such income cap, most small buyers won’t need Section 179 at all. Where it still earns its place: selectively expensing certain assets after electing out of bonus depreciation for the broader class, or managing the income limitation deliberately to avoid a carryforward you don’t want.
When both provisions apply to the same asset, Section 179 goes first, then bonus depreciation on what’s left, then MACRS on any remaining basis.7Internal Revenue Service. Instructions for Form 4562 – Depreciation and Amortization
Standard MACRS for Computers
If you don’t expense the equipment, it’s depreciated under the Modified Accelerated Cost Recovery System. Computers and peripherals fall into the 5-year property class under the General Depreciation System.8Internal Revenue Service. Publication 946 – How To Depreciate Property
The default method is 200% declining balance, which front-loads deductions into the early years. You can elect straight-line over the same five years if you’d rather have equal annual amounts, which is useful when you want predictable expenses or expect income to rise later.
Half-Year and Mid-Quarter Conventions
MACRS doesn’t assume equipment entered service on January 1. The default half-year convention treats all property as placed in service at the midpoint of the year, giving you half a year of depreciation in year one and the remaining half in a sixth year.
If more than 40% of your total depreciable property for the year went into service in the last three months, you must use the mid-quarter convention for everything placed that year.9eCFR. 26 CFR 1.168(d)-1 – Applicable Conventions—Half-Year and Mid-Quarter Conventions It assigns depreciation by the quarter each asset entered service and shrinks the first-year deduction on fourth-quarter buys.
What a Five-Year Schedule Looks Like
Under 200% declining balance with the half-year convention, a $10,000 server produces roughly these deductions: 20% ($2,000) in year one, 32% ($3,200) in year two, 19.2% ($1,920) in year three, 11.52% ($1,152) in years four and five, and 5.76% ($576) in year six. The method automatically switches to straight-line when that produces a larger deduction. The percentages come from IRS tables in Publication 946.
What Happens When You Sell or Stop Using the Equipment
The deductions you take now can come back as income later. This is depreciation recapture, and it’s the piece people overlook.
Computer equipment is Section 1245 property. When you sell it for more than its adjusted basis (original cost minus depreciation taken), the portion of gain tied to prior depreciation is taxed as ordinary income, not at capital gains rates.10Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property Section 179 and bonus depreciation get the same recapture treatment as regular MACRS.
An example: you buy a $10,000 server, deduct the full amount under bonus depreciation, then sell it two years later for $4,000. Adjusted basis is $0, so the entire $4,000 is ordinary income. Under standard MACRS with a $3,000 adjusted basis, only $1,000 would be recaptured. Bigger upfront deductions mean bigger potential recapture. The time value of the earlier deduction usually still wins, but plan for the tax hit in the sale year.
Recapture also applies if you claimed Section 179 and business use drops to 50% or below inside the five-year recovery period. You’ll owe the difference between what you deducted and what standard MACRS would have allowed, reported as ordinary income in the year use falls.
State Rules Don’t Always Follow Federal
Federal depreciation doesn’t automatically flow through to state returns. Several states, including California, Illinois, and Pennsylvania, have decoupled from federal bonus depreciation, so the 100% immediate deduction isn’t available on the state return. You may need to run MACRS for state purposes on equipment you fully expensed federally, which creates a timing difference to track. Check your state’s conformity rules before you file.
Records and Forms
Every depreciation claim needs documentation that holds up in an audit. Keep purchase receipts or vendor invoices showing cost, the date each asset entered service, and proof of business use. For mixed-use equipment, keep a log supporting your business-use percentage.
Electronic records are fine as long as you can retrieve and print them on request.11Internal Revenue Service. Revenue Procedure 98-25 Using a bookkeeping service or cloud storage doesn’t shift the recordkeeping obligation to them; if the data disappears, you still owe the proof.
Depreciation, Section 179 elections, and bonus depreciation claims are reported on Form 4562 with your business return.12Internal Revenue Service. About Form 4562 If you sell depreciated equipment during the year, the recapture calculation goes on Form 4797.