Book vs tax depreciation: what's the difference?
Book depreciation follows your accounting policy and shows asset cost over its useful life in your financial statements. Tax depreciation follows IRS rules, mostly MACRS, and sets the deduction on your return. The two schedules can match, but often don't, and the gap has to be tracked asset by asset.
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Side by side
| Book | Tax (US federal) | |
|---|---|---|
| Purpose | Financial statements | Tax return deduction |
| Rule source | Your accounting policy and reporting framework | Internal Revenue Code; IRS Publication 946 |
| Typical method | Straight-line is common (a general practice, not a rule) | MACRS: taxpayers "generally must use" it for property placed in service after 1986 (IRS Topic 704) |
| Life | Estimated useful life | Recovery period set by property class |
| First-year options | None specific to tax | Section 179 election and the special depreciation allowance |
Table is an editorial summary as of 2026-11-08. Book column describes common practice; the tax column is from IRS sources linked below.
How to track both
- Record each asset once with cost, in-service date and class.
- Assign a book method and life under your policy.
- Assign the tax treatment: MACRS class under GDS or ADS, plus any Section 179 or special allowance elected. Pub 946 explains when ADS applies.
- Run both schedules per period and keep the difference per asset.
- Reconcile the cumulative gap at year end and hand it to whoever handles deferred taxes.
This is the point where spreadsheets get fragile: two bases per asset, changed by additions and disposals. See the spreadsheet cost calculator and depreciation methods.
Sources
- IRS Topic 704, Depreciation
- IRS Publication 946, How To Depreciate Property (covers tax depreciation only)
FAQ
Can book and tax depreciation be the same?
Yes. Nothing requires the two schedules to differ. A company can choose a book method and life that happen to match its tax result, but because MACRS uses prescribed recovery classes and tables, the results often differ in practice.
Do I have to use MACRS for book depreciation?
No. MACRS is a tax system. Per the IRS, taxpayers "generally must use" it for most business property placed in service after 1986. Book depreciation follows your accounting policy, commonly straight-line, and is outside what IRS publications cover.
What is the difference between Section 179 and bonus depreciation?
Section 179 is an election to recover the cost of qualifying property in the year it is placed in service, up to a dollar limit and subject to a taxable income limit. The special depreciation allowance is a separate first-year deduction taken after Section 179 and before other depreciation. Limits change, so check current IRS guidance.
Where does the difference between book and tax go?
Usually into deferred tax accounting. Your tax adviser or auditor decides the treatment; the asset register's job is to keep both bases per asset so the gap can be reconciled.
Is this tax advice?
No. It is general information. Confirm treatment with a qualified tax professional and the current IRS Publication 946.
This page is general information, not tax advice.