BRACC × MGO | US Tax Internship Training

Depreciation Decision Lab

Classify the asset → choose the tax route → calculate the deduction → follow the result into the partner's K-1.

Case: Bengaluru Bytes LLC

The storyArun and Meera each own 50% of Bengaluru Bytes LLC, a U.S. partnership. In 2026 the business buys a $10,000 server, uses it 100% for business, and places it in service during the year. Before any depreciation deduction, the partnership has $40,000 of ordinary business income. For this learning case, assume the server qualifies for MACRS, 100% bonus depreciation and Section 179, the half-year convention applies to the MACRS-only route, and all Section 179 income/other limitations are satisfied.

Server Cost

$10,000

Property Class

5-year

MACRS Year 1

20%

Partners

50% / 50%

MACRS = RECOVERRecover basis over the tax recovery period. For this 5-year asset using the half-year table, Year 1 is 20%.

BONUS = ACCELERATEQualified property can receive an additional first-year deduction. In this case, 100% means the entire $10,000 is deducted in Year 1.

§179 = ELECT + PASSThe business elects the expense. In a partnership, the elected §179 amount is separately stated and allocated to partners on Schedule K-1.

1. First know the asset class

The recovery period comes from the type of asset, not how long management expects to keep it. These are useful GDS reference points.

Class / Recovery period	Easy examples to remember
3-year	Certain tractor units for over-the-road use; certain horses / rent-to-own property
5-year	Computers, servers, cars/light trucks, office machinery
7-year	Office furniture and fixtures — desks, files, safes
10-year	Vessels/barges/tugs; certain agricultural structures; fruit/nut trees and vines
15-year	Certain land improvements; qualified improvement property (QIP)
20-year	Certain farm buildings and specified utility-related property
25-year	Water utility property
27.5-year	Residential rental building
39-year	Nonresidential real property — office building, store, warehouse
Not depreciable	Land itself

This is a learning map, not an exhaustive classification list. Actual class life and eligibility can depend on the specific property and use.

2. Quick classification warm-up

Use the reference above. The goal is to make the common classes automatic.

Laptop used by the tax team

Office desks and chairs

Depreciable paved parking area / land improvement

Residential apartment rental building

Commercial office building

Land under the office building

3. One server — three tax routes

Treat each route as a separate scenario. Do not combine all three deductions on the same $10,000 basis.

Route A — MACRS only

$10,000 basis × 20% Year-1 rate. Whatever is not deducted remains as tax basis for future depreciation.

Route B — 100% Bonus

For this qualified-property scenario, 100% of the basis is deducted in Year 1. Regular MACRS has no remaining basis.

Route C — §179

The partnership elects to expense the $10,000. The elected amount is separately stated to Arun and Meera.

Order when methods are combined: §179 → Bonus → MACRS on the remaining basis

Your Name

Training assessment: your name and submitted responses are recorded when you submit.

A. Year 1 MACRS deduction

$10,000 × 20%

A. Remaining basis after Year 1 MACRS

Cost − Year 1 deduction

B. 100% Bonus deduction

Qualified basis × 100%

B. Remaining basis after 100% Bonus

Cost − bonus deduction

C. §179 elected by partnership

Assume full $10,000 is elected and all limits are satisfied

C. Remaining basis after §179

Cost − elected §179 amount

4. Follow it into Arun's K-1

Start with $40,000 partnership ordinary income before depreciation. Arun owns 50%. This is where §179 behaves differently from regular MACRS/bonus depreciation.

Arun — K-1 ordinary income after MACRS route

Partnership ordinary income is reduced by regular depreciation, then split 50/50.

Arun — K-1 ordinary income after Bonus route

Bonus depreciation reduces partnership ordinary income, then split 50/50.

Arun — K-1 ordinary income in §179 route

§179 is not deducted in partnership ordinary income for this purpose; first split the $40,000 ordinary income 50/50.

Arun — separately stated §179 on K-1

Arun receives 50% of the partnership's elected §179 amount.

2026 facts worth remembering

100% bonus depreciation generally applies to eligible qualified property acquired and placed in service after January 19, 2025; qualified MACRS property generally includes property with a recovery period of 20 years or less.
For tax years beginning in 2026, the general §179 dollar limit is $2,560,000 and the phase-out threshold begins at $4,090,000.
§179 is elective and subject to eligibility and income/other limitations. For partnerships, the deduction is allocated to partners and separately stated on Schedule K-1; partner-level limitations still matter.
Bonus and §179 eligibility are not identical. Always identify the asset first, then test the specific rule.

MGO training use only • BRACC Tax Lab