Reference
Depreciation glossary
Definitions follow the IRS's own glossary in Publication 946 where one exists, shortened and in plain English. Book-keeping terms follow the OpenStax accounting textbook.
- Accumulated depreciation
- A contra-asset account holding all depreciation recorded on an asset so far. Cost minus accumulated depreciation is the asset's book (carrying) value. [OpenStax 11.3]
- Adjusted basis
- Original cost plus certain improvements, minus deductions such as depreciation allowed or allowable. Used to figure gain or loss when you sell. [Pub 946]
- ADS
- Alternative Depreciation System: straight line over generally longer periods. Required in some cases, for example for vehicles used 50% or less for business. [Pub 946]
- Basis
- Your tax investment in the property, usually its cost (purchase price plus sales tax, freight and installation). [Pub 946]
- Bonus depreciation
- The special depreciation allowance under section 168(k): an extra first-year deduction for qualified property (100% for property acquired after January 19, 2025, unless you elect otherwise). [Notice 2026-11]
- Class life
- A number of years assigned to an asset class that sets its recovery period under GDS and ADS (Pub 946, Appendix B). [Pub 946]
- Convention
- The MACRS rule for how much of the first and last year counts: half-year, mid-quarter or mid-month. [Pub 946]
- Declining balance
- An accelerated method: a fixed rate (200% or 150% divided by the recovery period) applied to the remaining balance, switching to straight line when that gives more. [Pub 946]
- Disposition
- Permanently withdrawing an asset from business or income-producing use, for example by selling, scrapping or converting it to personal use. [Pub 946]
- GDS
- General Depreciation System, the default MACRS system. Uses 200% or 150% declining balance for personal property and straight line for buildings. [Pub 946]
- Listed property
- Passenger automobiles, other property used for transportation, and property of a type generally used for entertainment, recreation or amusement. Extra record-keeping and 50% business-use rules apply. [Pub 946]
- MACRS
- Modified Accelerated Cost Recovery System, the federal tax depreciation system for most property placed in service after 1986. It has two systems: GDS and ADS. [Pub 946]
- Nonresidential real property
- Most real property that is not residential rental property, such as offices, stores and warehouses. Recovered over 39 years. [Pub 946]
- Passenger automobile
- A four-wheeled vehicle made mainly for public roads rated at 6,000 pounds or less unloaded gross vehicle weight (gross vehicle weight for trucks and vans). Annual depreciation caps apply. [Pub 946]
- Placed in service
- When an asset is ready and available for its specific use in your business or rental activity. Depreciation starts then, not on the purchase date. [Pub 946]
- Recovery period
- The number of years over which an asset's basis is deducted under MACRS, for example 5 years for computers and cars or 27.5 years for residential rental buildings. [Pub 946]
- Residential rental property
- A building where 80% or more of the gross rental income comes from dwelling units. Recovered over 27.5 years. [Pub 946]
- Salvage value
- An estimate of what an asset will be worth at the end of its useful life. Used in book depreciation; not used under MACRS. [Pub 946]
- Section 1245 property
- Depreciable personal property such as equipment, furniture and vehicles. Gain on sale is taxed as ordinary income up to the depreciation taken. [Pub 946]
- Section 1250 property
- Depreciable real property, such as buildings, that is not section 1245 property. [Pub 946]
- Section 179 deduction
- An election to deduct all or part of the cost of qualifying property in the year it is placed in service, up to an annual dollar limit and your business income. [Pub 946]
- Straight line
- Deducts the same amount each full year of the recovery period: 1 divided by the number of years. [Pub 946]
Sources
- Principles of Accounting, Volume 1: 11.3 Explain and Apply Depreciation Methods to Allocate Capitalized Costs, OpenStax, Rice University. Textbook (CC BY-NC-SA 4.0) · full text · checked Oct 24, 2026
- Publication 946 (2025), How To Depreciate Property, Internal Revenue Service. Official guidance · full text · checked Oct 24, 2026
- Notice 2026-11 (interim guidance on the additional first year depreciation deduction), Internal Revenue Service. IRS notice · full text · checked Oct 24, 2026