IRC §168 is the statutory foundation of modern depreciation. Enacted as part of the Tax Reform Act of 1986, it replaced the earlier Accelerated Cost Recovery System (ACRS) and remains the governing statute for every MACRS depreciation schedule and every §168(k) bonus depreciation deduction taken since January 1, 1987. The OBBBA 2025 restoration of 100% bonus depreciation operates by amending §168(k); the underlying §168(a)–(g) framework was unchanged.
The section is one of the most heavily-cited provisions of Subtitle A. Every cost segregation study, every Form 3115 method change to recover missed depreciation, every §168(k) election, and every ADS computation is anchored in §168.
What it says
”Except as otherwise provided in this section, the depreciation deduction provided by section 167(a) for any tangible property shall be determined by using— (1) the applicable depreciation method, (2) the applicable recovery period, and (3) the applicable convention.”
The three “applicable” determinations — method, recovery period, and convention — define the entire MACRS framework. Every classification question reduces to picking among them.
”Except as provided in paragraphs (2) and (3), the applicable depreciation method is— (A) the 200 percent declining balance method, (B) switching to the straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance.”
The 200%-declining-balance default applies to 3-, 5-, 7-, and 10-year property. Paragraph (2) substitutes 150% for 15- and 20-year property. Paragraph (3) requires straight-line for residential rental, nonresidential real, water utility, and railroad grading and tunnel bores.
”For purposes of subsection (a), the applicable recovery period shall be determined in accordance with the following table: 3-year property… 3 years; 5-year property… 5 years; 7-year property… 7 years; 10-year property… 10 years; 15-year property… 15 years; 20-year property… 20 years; 25-year property… 25 years; Residential rental property… 27.5 years; Nonresidential real property… 39 years.”
The recovery periods of §168(c) are themselves derived from the class-life assignments of Rev. Proc. 87-56, the Treasury-issued table that §168(i)(1) directs the Secretary to maintain.
”In the case of any qualified property— (A) the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to the applicable percentage of the adjusted basis of the qualified property.”
The “applicable percentage” under current law (post-OBBBA, January 19, 2025) is 100%. The OBBBA restoration is structured as a permanent rate; the prior TCJA-era phase-down to 0% by 2027 was overridden.
How it operates
§168 operates as a deterministic algorithm. Given a property’s class life (from §168(i)(1) and Rev. Proc. 87-56), §168(c) supplies the recovery period; §168(b) supplies the method; §168(d) supplies the convention. The depreciation deduction follows mechanically.
§168(k) operates as an additional first-year deduction stacked on top of the §168(a) framework. For “qualified property” (generally MACRS property with a recovery period of 20 years or less), the §168(k) deduction is computed first, the basis is reduced by that amount, and the remaining basis is depreciated under §168(a) over the recovery period.
§168(g) governs the Alternative Depreciation System (ADS) — straight-line over longer recovery periods. ADS is mandatory for tax-exempt-use property, foreign-use property, and property financed with tax-exempt bonds; it is elective for any class as a whole.
Cross-references
- MACRS topic hub (practitioner-facing framework synthesizing §168)
- Bonus depreciation topic hub (§168(k) detail)
- Pub. 946 — How to Depreciate Property (IRS plain-English explanation)
- Rev. Proc. 87-56 (class-life table authorized by §168(i)(1))
- OBBBA 2025 (the legislation that amended §168(k))
- GDS vs ADS glossary entry
Sources
- Statutory text: 26 U.S.C. § 168 (Cornell LII)
- Implementing regulations: Treas. Reg. §§ 1.168-1 through 1.168-6
- IRS guidance: Pub. 946 (How to Depreciate Property)
- Class-life table: Rev. Proc. 87-56
- Most recent material amendment: OBBBA §70302(a) (January 19, 2025)