Is salvage value used in MACRS?

The short answer, and what it depends on

The glossary of Publication 946 is unambiguous: salvage value is an estimated value of property at the end of its useful life, and it is “not used under MACRS.” In the Modified Accelerated Cost Recovery System, which the publication says you must use for most property, you take the property’s unadjusted basis and multiply it by the percentage for the property class, convention and year. No deduction is held back for what you think you could sell the asset for at the end. That is a deliberate feature of the system, and it is one of the main differences between tax depreciation and the depreciation in a company’s accounting records.

Where salvage value does appear

The word shows up in the chapter on the general rules for depreciation, in the description of the straight line method. This method lets you deduct the same amount of depreciation each year over the useful life of the property. To figure it, first determine the adjusted basis, salvage value and estimated useful life, then subtract the salvage value, if any, from the adjusted basis. The balance is the total depreciation you can take over the useful life. Divide the balance by the number of years in the useful life and you have the yearly deduction. If in the first year you use the property for less than a full year, you prorate the deduction by the number of months in use.

The straight-line method with salvage applies in the publication to depreciable intangibles and to other property that cannot use MACRS, such as films, videotapes and sound recordings, where you may choose straight line or the income forecast method. It also appears in the rule for when depreciation stops: you stop depreciating when you have fully recovered your cost or other basis, which happens when your section 179 deduction, your allowed or allowable depreciation, and salvage value, if applicable, equal your cost or investment in the property.

Worked example from the publication

In April, you buy a patent for $5,100 that is not a section 197 intangible. You depreciate it using the straight line method with a 17-year useful life and no salvage value. The yearly deduction is $5,100 divided by 17, or $300. You used the patent for 9 months of the first year, so the first-year deduction is $300 times 9 over 12, which is $225. Next year you deduct the full $300. Enter 5,100, 0, 17 and 9 in the calculator and you get the same numbers.

Now suppose the same patent had a salvage value of $510. The depreciable amount would drop to $4,590 and the yearly deduction to $270, a first-year deduction of $202.50. The only change is the one the publication describes: subtract salvage first. The calculator shows both the straight-line result and a reminder that under MACRS the full basis is depreciable.

Why ignoring salvage is simpler, and what it changes

Because MACRS ignores salvage value, you never have to estimate a resale value, and you never have to argue about it. The recovery period, the convention and the percentage determine the deduction. That does not mean the asset’s eventual disposal is free of consequences. When you dispose of property you compare the amount you receive with your adjusted basis, which is your cost reduced by the depreciation you took. Because MACRS depreciates the whole basis, a fully depreciated machine has a zero adjusted basis, and any price you receive for it can produce a gain. The rules for reporting that gain, including the recapture of depreciation, sit in other publications; the publication points to Publication 544 for sales and other dispositions of assets, and the depreciation recapture calculator estimates the effect.

Section 179 and special allowance

The two first-year write-offs ignore salvage value as well. The section 179 deduction and special depreciation allowance reduce the basis you carry into regular MACRS depreciation. In the publication’s example for the special allowance, a $450,000 item placed in service on January 7, 2025 gets a 40 percent allowance of $180,000, and the remaining cost is used to figure regular MACRS depreciation. No salvage value is deducted from the $450,000 at any step. The section 179 and bonus depreciation estimator models this.

What you should record

For MACRS property, keep the cost, the placed-in-service date, the class and the convention. For property you depreciate under a straight-line method that uses salvage, also record how you estimated the salvage value and the useful life, because those are judgments you may need to support. The publication notes that if you deduct more depreciation than you should, you reduce basis by the depreciation allowed, and if you deduct less, by the depreciation allowable, the greater of the two. Either way, the records should let someone recompute the schedule.

Limits of this page

The publication treats salvage value briefly, so this page is deliberately narrow. It does not describe the income forecast method, the 15-year safe harbor for created intangibles or the 36-month life for off-the-shelf computer software, each of which is covered in the publication under intangible property. Read when property is placed in service for the start date that drives the first-year prorating.

Sources

• IRS Publication 946, How To Depreciate Property (2025): Chapter 1, Straight Line Method; Glossary, Salvage value. Page last reviewed or updated by the IRS April 30, 2026. Read November 2, 2026.

Edition read: Publication 946 (2025), for use in preparing 2025 returns. Limits and percentages quoted are for 2025 unless a page says otherwise. For tax years beginning in 2025 the publication gives a section 179 limit of $2,500,000, reduced dollar for dollar once qualifying purchases exceed $4,000,000, and $31,300 for heavy sport utility vehicles. Its What’s New for 2026 section gives $2,560,000, a $4,090,000 purchase threshold and $32,000. For qualified property acquired and placed in service after January 19, 2025 the special depreciation allowance is 100 percent, with an election for 40 percent in the first tax year ending after that date; for qualified property acquired before January 20, 2025 and placed in service in 2025 it is 40 percent. Check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it. Marked for human review.