Cost Segregation · Brief · Working level
MACRS asset classes and recovery periods: a cost segregation reference
What belongs in 5-, 7-, 15-, 27.5-, and 39-year property, with a reference table of the components a cost segregation study typically assigns to each class.
Every dollar of a building's depreciable basis lands in exactly one MACRS class, and the class determines the recovery period, the depreciation method, and bonus eligibility. The classes come from Section 168(e), which maps the class lives assigned by Rev. Proc. 87-56 to recovery periods; the personal-versus-structural boundary comes from the Section 1245/1250 case law. This brief is the working reference: what each class is, what typically goes in it, and the traps at the borders. For how a study makes these assignments, see what a cost segregation study is; for the general mechanics of methods and conventions, see depreciation basics.
The classes at a glance
Common building components by MACRS class:
| Class | Method / convention | Typical components |
|---|---|---|
| 5-year | 200% DB, half-year | Carpet and removable flooring; decorative and accent lighting; dedicated electrical outlets, circuits, and panels serving equipment; kitchen/process plumbing; cabinetry and millwork; window treatments; movable partitions; certain security and A/V equipment |
| 7-year | 200% DB, half-year | Office furniture and fixtures acquired with the building; certain equipment without a specified class life (the default class) |
| 15-year | 150% DB, half-year | Parking lots, curbs, and striping; sidewalks; landscaping and irrigation; site lighting on poles; fencing and retaining walls; exterior signage; storm drainage; qualified improvement property (straight line, not 150% DB) |
| 27.5-year | Straight line, mid-month | Residential rental buildings and their structural components (an apartment building's shell, roof, general systems) |
| 39-year | Straight line, mid-month | Nonresidential buildings and structural components: foundation, framing, exterior walls, windows, roof, general HVAC, general electrical and plumbing, elevators, fire protection, restrooms |
Land — including clearing and general grading — is not depreciable and must be carved out before any of this begins.
Notes on the boundaries
5-year property is activity-dependent. Rev. Proc. 87-56 assigns lives by the business activity the asset is used in; the same asset can differ by industry (distributive-trades assets under class 57.0 are 5-year, which covers most retail and service fact patterns). Studies must state the activity class they relied on.
The dedicated-versus-general test drives the big dollars. Electrical and plumbing are the largest systems in most buildings, and only the portions dedicated to serving Section 1245 equipment qualify for 5-year treatment — the holding of Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997). General-use wiring, lighting, and restroom plumbing are structural components regardless of enthusiasm.
15-year land improvements must be improvements, not land, not building. Excavation for the building footprint follows the building; general site grading follows the land; the parking lot is the clean 15-year case. Site utilities are contested ground — the IRS Audit Techniques Guide treats those serving general building operation as building property.
Qualified improvement property is the odd resident of the 15-year class. QIP — interior improvements to nonresidential buildings placed in service after the building — is 15-year straight-line property and bonus-eligible, but it is defined by statute rather than by the personal-property case law. It gets its own treatment in our QIP brief.
27.5 versus 39 is a building-level test. A building is residential rental property only if 80 percent or more of gross rental income is from dwelling units; mixed-use buildings that fail the test are 39-year throughout. Hotels and other transient-occupancy properties are nonresidential.
One more consequence of granularity worth remembering: a study that documents components at this level also enables partial disposition elections when those components are later replaced — a secondary benefit that blanket 39-year treatment forfeits.
Frequently asked questions
- What are the MACRS recovery periods for real estate components?
- Tangible personal property inside a building is generally 5-year (some 7-year) property; land improvements such as parking lots and landscaping are 15-year; residential rental buildings are 27.5-year; nonresidential buildings and their structural components are 39-year. Qualified improvement property — certain interior improvements to nonresidential buildings — is 15-year. Land itself is not depreciable.
- Where do MACRS class lives come from?
- Rev. Proc. 87-56 assigns class lives by asset category and activity, and Section 168(e) maps those lives to recovery periods. A cost segregation study's central task is matching each building component to the correct Rev. Proc. 87-56 asset class, supported by the Section 1245/1250 case law on what counts as a structural component.
- Which recovery periods qualify for bonus depreciation?
- Property with a MACRS recovery period of 20 years or less — so 5-, 7-, and 15-year property, including qualified improvement property. The 27.5- and 39-year building classes never qualify, which is why reclassification into shorter classes is a precondition to claiming bonus on any part of a building's cost.