FF&E Depreciation: MACRS, Section 179, and Bonus Rules

Depreciation on furniture, fixtures, and equipment works off three numbers: what the item cost you (including sales tax, freight, and installation), the recovery period the IRS assigns it under MACRS, and a salvage value of zero. Most FF&E depreciation runs on either a 5-year or 7-year MACRS schedule, but current law lets most businesses skip that schedule entirely and deduct the full cost in year one through Section 179, 100% bonus depreciation, or both stacked together.

What Counts as FF&E

FF&E covers tangible assets a business uses in daily operations that last longer than a year: desks, shelving, phone systems, computers, production machinery, restaurant ovens, retail display cases. These sit on the balance sheet as long-term assets, not as expenses or inventory.

FF&E does not include land, buildings, or structural components of buildings. Those follow different depreciation rules entirely. It also excludes inventory held for resale. The classification matters because it drives which MACRS recovery period and method apply, and putting an item on the wrong schedule can under- or overstate deductions and create audit exposure.

The Three Numbers You Need

Cost Basis

Cost basis is the total amount you invest to get the asset up and running, not just the sticker price. Sales tax, shipping, freight, and installation charges all get folded in. Buy a commercial oven for $8,000, pay $600 for delivery and $400 for installation, and your depreciable basis is $9,000. The IRS requires you to capitalize these associated costs rather than deducting them separately.¹

Recovery Period

For tax purposes, how long you expect to use the asset is irrelevant. The IRS assigns fixed recovery periods under MACRS, and you use them. Computers and certain technology equipment are 5-year property. Office furniture and most general business equipment are 7-year property.² These statutory periods are typically shorter than actual economic life, which accelerates the tax benefit.

Salvage Value

Salvage value matters for GAAP financial statements but not for tax depreciation. Under MACRS, salvage value is always treated as zero, so you depreciate the entire cost basis.²

When You Can Skip Depreciation Entirely

Not every purchase has to run through a depreciation schedule. Two IRS rules can let you deduct qualifying costs immediately.

The $2,500 De Minimis Safe Harbor

If your business doesn’t have audited financial statements, you can expense items costing $2,500 or less per invoice or per item in the year of purchase.³ The election is made annually on your return and applies to each qualifying purchase individually. Ten office chairs at $200 each qualify item by item. A single $3,000 desk does not.

Repairs vs. Improvements

Money spent to repair or maintain existing equipment is deductible immediately. Money spent to improve it must be capitalized and depreciated. The IRS applies what practitioners call the BAR test: an expenditure is an improvement if it produces a betterment, an adaptation to a new use, or a restoration of the asset.³ Routine maintenance like cleaning, oiling, or replacing minor parts stays a deductible repair.

How the MACRS Calculation Works

The IRS requires nearly all businesses to use MACRS for tax depreciation. The system front-loads deductions, so early years produce a bigger write-off than later ones.¹ That timing matters: a dollar of tax savings this year is worth more than the same dollar five years out.

The Percentage Tables

MACRS uses a 200% declining balance method that automatically switches to straight-line when straight-line produces a larger deduction. You don’t do that math. The IRS publishes percentage tables (Table A-1 in Publication 946) that already handle the switch. For 5-year property under the standard half-year convention, the percentages are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. For 7-year property, they are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.92%, 8.93%, and 4.46%.¹ Apply the percentage directly to the full cost basis. Salvage value is zero, remember.

5-year property actually takes six calendar years to fully depreciate, and 7-year property takes eight. The extra year exists because the half-year convention assumes you placed the asset in service at the midpoint of the first year, so you get partial deductions in both the first and last years.

Half-Year vs. Mid-Quarter Convention

The half-year convention is the default for FF&E. It treats every asset placed in service during the year as if you bought it on July 1, regardless of the actual date.⁴

The mid-quarter convention takes over when more than 40% of your total depreciable property for the year is placed in service during the last three months.² Under the mid-quarter convention, each asset is treated as placed in service at the midpoint of the quarter of actual purchase. If you concentrate equipment buys in October through December, expect this rule to shrink your first-year deduction on those assets. Publication 946 has separate percentage tables for mid-quarter calculations.

Section 179 Immediate Expensing

Section 179 lets you deduct the full cost of qualifying FF&E in the year you place it in service instead of spreading the deduction across the recovery period. For the 2026 tax year, the maximum Section 179 deduction is $2,560,000, adjusted for inflation from a $2,500,000 base.⁵ The deduction phases out dollar-for-dollar once total Section 179 property placed in service during the year exceeds $4,090,000, and disappears entirely at $6,650,000.

The deduction is elective. You choose how much to expense up to the limit. One important constraint: Section 179 cannot create or increase a net operating loss. Your deduction is capped at your taxable income from all active trades or businesses for the year. Any disallowed portion carries forward indefinitely.⁶

Bonus Depreciation

Bonus depreciation is the other immediate-expensing tool, and it’s more aggressive in some ways. For property acquired after January 19, 2025, the One, Big, Beautiful Bill Act made the 100% bonus depreciation deduction permanent.⁷ The entire cost of qualifying FF&E is deductible in year one, with no dollar cap and no taxable income limitation.

Bonus depreciation is automatic. It applies unless you affirmatively elect out. The law also allows a partial election: you can choose 40% instead of 100% for any class of property placed in service during the year.⁸ Businesses with low current taxable income sometimes prefer to spread deductions into higher-bracket years, or want to avoid creating a net operating loss that could expire unused.

Stacking Section 179 and Bonus

The two provisions stack. Section 179 comes first, up to its dollar and income limits. Any remaining basis then gets 100% bonus depreciation. In practice, most businesses can write off the full cost of FF&E purchases in year one regardless of the amount. The strategic difference: Section 179 is elective and income-limited, so it gives you control over timing. Bonus depreciation is automatic and can create or increase a net operating loss, which may or may not help you depending on your broader picture.

When You Have To Use ADS Instead

The standard MACRS you’ve been reading about is technically the General Depreciation System (GDS). In certain situations, the IRS requires the Alternative Depreciation System (ADS) instead. ADS uses straight-line depreciation over longer recovery periods, which slows deductions considerably.²

ADS is mandatory for:

Property used predominantly outside the United States (more than 50% foreign use).
Tax-exempt use property, meaning assets leased to governments or nonprofits.
Property financed with tax-exempt bonds.
Certain imported property covered by an executive order restricting imports, where less than 50% of the basis is attributable to value added in the U.S.

The Listed Property Trap

Some FF&E that lends itself to personal use gets extra scrutiny under the listed property rules. If a listed asset is not used more than 50% for business, you lose accelerated depreciation entirely and must use ADS instead.⁹

Worse, if business use drops below 50% after you’ve claimed accelerated deductions, you have to recapture the excess. The difference between what you actually deducted and what you would have deducted under ADS gets added back to income. Vehicles are the most common listed property, but any asset with significant personal-use potential can fall in. Keep dated usage logs showing business purpose and percentage of business use.

Depreciation Recapture When You Sell

Depreciation gives you tax savings on the way in. The IRS takes some of it back on the way out. When you sell FF&E for more than its depreciated book value, the gain attributable to prior depreciation is taxed as ordinary income under Section 1245, not at the lower capital gains rate.¹⁰

The math: you bought equipment for $50,000 and claimed $50,000 in total depreciation, so book value is now zero. Sell it for $15,000, and the entire $15,000 gain is ordinary income, because it falls within depreciation previously deducted. If the sale price exceeded the original $50,000 cost, only the amount up to total depreciation claimed would be ordinary income; anything above that would be capital gain.

Report the sale and recapture on Form 4797, Part III.¹¹ This catches businesses off guard, especially after using Section 179 or bonus depreciation to write off the full cost in year one and then selling the asset a few years later for a meaningful amount. The original deduction still made sense in time-value terms, but recapture needs to be part of the disposal calculation.

Reporting on Form 4562

All MACRS depreciation, Section 179 deductions, and bonus depreciation are reported on Form 4562, filed with your return for any year you place new depreciable property in service.¹²

Behind the form, keep an asset register that tracks each depreciable item individually. For every asset, record the date placed in service, the full cost basis, the MACRS recovery period and method, annual and cumulative depreciation, and any Section 179 or bonus depreciation elected. When you sell, retire, or scrap the asset, remove both the cost basis and accumulated depreciation from your books and compare the proceeds to remaining book value to determine gain or loss. A gain triggers the Section 1245 recapture above. A loss is deductible. Keeping the register current turns the disposal calculation into a few minutes of work instead of hours of forensic accounting.

1
Internal Revenue Service. Publication 946 – How To Depreciate Property
2
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
3
Internal Revenue Service. Tangible Property Final Regulations
4
eCFR. 26 CFR 1.168(d)-1 – Half-Year and Mid-Quarter Conventions
5
Office of the Law Revision Counsel. 26 USC 179 – Election To Expense Certain Depreciable Business Assets
6
eCFR. 26 CFR 1.179-3 – Carryover of Disallowed Deduction
7
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill
8
Internal Revenue Service. Interim Guidance on Additional First Year Depreciation Deduction
9
Office of the Law Revision Counsel. 26 USC 280F – Limitation on Depreciation for Luxury Automobiles and Certain Other Property
10
Office of the Law Revision Counsel. 26 USC 1245 – Gain From Dispositions of Certain Depreciable Property
11
Internal Revenue Service. Instructions for Form 4797
12
Internal Revenue Service. Instructions for Form 4562 – Depreciation and Amortization