Publication 946 is the IRS’s primary plain-English explanation of how taxpayers depreciate property under federal law. It synthesizes the Modified Accelerated Cost Recovery System (MACRS) of IRC §168, the §179 expensing election, the §168(k) bonus depreciation regime, and the recovery-period tables of Rev. Proc. 87-56 into a single annual reference. It is the document the IRS itself points taxpayers to when explaining how to determine class lives, methods, and conventions; it is also the most commonly cited IRS publication in cost segregation studies.
The publication is reissued each year, typically in late winter, to reflect statutory amendments enacted during the prior year — bonus-depreciation rate adjustments, the §179 annual limits, conformity-table revisions, and the placed-in-service dates that mark transition windows. The 2026 edition incorporates the One Big Beautiful Bill Act restoration of 100% bonus depreciation effective for property placed in service after January 19, 2025.
What it says
”To be depreciable, the property must meet all the following requirements: It must be property you own. It must be used in your business or income-producing activity. It must have a determinable useful life. It must be expected to last more than one year. It must not be excepted property.”
The publication is organized in five chapters: an overview of what is and is not depreciable; the MACRS computation framework; the §179 election; listed-property rules; and the class-life and recovery-period tables. Cost segregation practitioners cite Chapter 4 (the MACRS computation) and Appendix B (the class-life table) most frequently.
”This table lists the class lives and recovery periods established for property under the Modified Accelerated Cost Recovery System. The class life for any particular asset is the basis for both the GDS and the ADS recovery period.”
Appendix B groups property into asset classes by industry (Part B) and by general function (Part A). A cost segregation study cites the most specific applicable industry classification — auto dealer, restaurant, hotel, distributive trades, agriculture — to determine each component’s class life and recovery period.
How it operates
A taxpayer following Pub. 946 works through a deterministic five-step sequence:
- Determine whether the property is depreciable under Chapter 1 (owned; used in a trade or business or for income production; determinable useful life; expected to last more than one year; not excepted property).
- Find the class life of the property in Appendix B, which implements Rev. Proc. 87-56.
- Choose a recovery period — GDS or ADS — under IRC §168(g).
- Select the depreciation method, the placed-in-service convention, and the bonus-depreciation rate that applied in the placed-in-service year under §168(k).
- Compute the first-year deduction using either the prescribed table percentages in Appendix A or the underlying formula.
The publication explicitly does not bind the IRS or the courts — it is general guidance, not authority. It is the document examiners use to assess whether a return position is reasonable, which is the practical reason cost segregation studies cite it.
Cross-references
- IRC §168 — Accelerated Cost Recovery System (the statute Pub. 946 interprets)
- Rev. Proc. 87-56 — Class Lives and Recovery Periods (the table Appendix B carries forward)
- MACRS topic hub (practitioner-facing framework)
- Bonus depreciation topic hub (§168(k) detail)
- §179 expensing (companion election)
- Pub. 5653 — Cost Segregation Audit Techniques Guide (companion guide for examiners)
Sources
- IRS PDF: www.irs.gov/pub/irs-pdf/p946.pdf
- Statute: 26 U.S.C. § 168
- Implementing regulations: Treas. Reg. §§ 1.168-1 through 1.168-6
- Class-life authority: Rev. Proc. 87-56