8614 / How is property classified for purposes of depreciation?

The classification of property by recovery period and depreciation method is as follows:¹

3 years 200% DB*	class life of 4 years or less, certain horses, qualified rent-to-own property
5 years 200% DB*	class life of more than 4 but less than 10 (e.g., heavy trucks, buses, offshore drilling equipment, most computer and data handling equipment, cattle, helicopters and non-commercial aircraft, automobiles and light trucks)
7 years 200% DB*	class life of 10 or more but less than 16 (e.g., most office furnishings, most agricultural machinery and equipment, theme park structures, most railroad machinery, equipment and track, commercial aircraft), motorsports entertainment complexes, Alaska neutral gas pipelines, property without a class life and not otherwise classified under TRA ‘86
10 years 200% DB*	class life of 16 or more but less than 20 (e.g., vessels, barges and similar water transportation equipment, petroleum refining equipment)
15 years 150% DB*	class life of 20 or more but less than 25 (e.g., industrial steam and electric generation/distribution systems, cement manufacturing equipment, commercial water transportation equipment (freight or passenger), nuclear power production plants)
20 years 150% DB*	class life of 25 or more (e.g., certain farm buildings, railroad structures and improvements, telephone central office buildings, gas utility production plants and distribution facilities), but excluding real property with class life of 27.5 years or more
27.5 years straight line	residential rental property
39 years straight line	nonresidential real property (class life of 27.5 years or more)
50 years straight line	railroad grading or tunnel bore
* Declining balance method switching to the straight line method at a time to maximize the deduction. Substitute 150 percent DB for 200% DB if 3-, 5-, 7-, or 10-year property is used in a farming business. An election can be made to use the straight line method instead of the declining balance method. Also, with respect to 3-, 5-, 7-, and 10-year property, an election can be made to use 150 percent DB.

Property is assigned to various class lives in Revenue Procedure 87-56.² These class lives can also be found in IRS Publication 946.

The Tax Reform Act of 1986 assigned certain property to recovery periods without regard to their class life (e.g., automobiles and light trucks). Also, intangible property that is depreciable is subject to special recovery periods. If computer software is depreciable, the deduction is calculated using a straight line method over 36 months.³ Computer software acquired after August 10, 1993 is generally depreciable if it (a) is a program designed to cause a computer to perform a desired function, (but generally not a database) and (b) either (1) is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified, or (2) is not acquired in a transaction involving the acquisition of assets constituting a trade or business.⁴ Certain mortgage servicing rights may be depreciated over 108 months using the straight line method.⁵