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Key takeaways
- Depreciation spreads the cost of an asset across its useful life rather than expensing it all at once.
- MACRS is the default federal tax depreciation system for most business and rental property.
- Section 179 and bonus depreciation can accelerate deductions for certain qualifying assets.
- Depreciation reduces basis, which can increase taxable gain on sale (depreciation recapture).
How Olomon thinks about this
Olomon ties depreciation tracking to the underlying asset, so accumulated depreciation and adjusted basis are always visible — not just in your CPA's spreadsheet. That matters most at sale, when the difference between book value, tax basis, and market value drives the actual tax bill.
Quick facts
- Residential rental recovery period27.5 years (straight-line)
- Commercial real estate recovery period39 years (straight-line)
- Default federal systemMACRS (Modified Accelerated Cost Recovery System)
- Unrecaptured §1250 max rate25%
- Reporting formIRS Form 4562
In-depth definition
Depreciation is both an accounting concept (matching cost to the periods that benefit) and a tax tool (deductions that reduce taxable income). For real-estate investors and small-business owners, depreciation is often the biggest non-cash expense on their return — and recapture at sale is one of the most overlooked surprises.
Frequently asked questions
When depreciable property is sold, the IRS “recaptures” previously claimed depreciation by taxing that portion of the gain at higher rates (up to 25% for unrecaptured Section 1250 gain on real estate; ordinary rates for Section 1245 personal property).
Sources
Primary, authoritative references.
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Internal Revenue Service (IRS)
Topic No. 704, DepreciationCited for: Overview of federal depreciation
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Cite this page
APAOlomon Editorial Team. (2026). Depreciation. Olomon Financial Glossary. https://olomon.com/financial-glossary/depreciation