Pennsylvania Depreciation Schedules for Real Estate Investors and Business Owners: 2026 Tax Strategy Guide
If you own businesses or real estate in Pennsylvania, strategic use of depreciation schedules can help you unlock thousands of dollars in tax savings each year. For the 2026 tax year, understanding how Pennsylvania depreciation schedules work—along with MACRS, Section 179, and bonus depreciation—is essential for maximizing your deductions and complying with both IRS and Pennsylvania rules.
Table of Contents
- Key Takeaways
- What Are Pennsylvania Depreciation Schedules?
- How Do MACRS Depreciation Rates Work?
- What Is the Section 179 Deduction?
- How Can You Calculate Depreciation Deductions?
- What Is Bonus Depreciation?
- Cost Segregation Strategies
- Frequently Asked Questions
Key Takeaways
- Use MACRS to depreciate real estate (27.5 or 39 years) and equipment (5-20 years).
- Section 179 deduction allows up to $1,160,000 immediate expensing for qualifying property in 2026.
- Bonus depreciation lets you write off up to 100% of new equipment in the year placed in service.
- Cost segregation can accelerate depreciation and increase 2026 deductions for property investors.
- Pennsylvania generally conforms to federal depreciation, but you must report on PA-40 Schedule C or F.
What Are Pennsylvania Depreciation Schedules?
Pennsylvania depreciation schedules are the timelines over which you can deduct the cost of business assets and real property from your taxable income. Most Pennsylvania business owners and landlords use the federal MACRS system, but your depreciation deductions must be properly reported to both the IRS and state of Pennsylvania using Form PA-40 Schedule C (for business income) or Schedule F (for farm income).
Assets like commercial buildings, rental properties, machinery, vehicles, and improvements can all be depreciated—except for land itself.
Property Types and Typical Recovery Periods
| Asset Type | Typical MACRS Period |
|---|---|
| Residential Rental | 27.5 years |
| Commercial Property | 39 years |
| Equipment/Machinery | 5, 7, or 15 years |
| Land Improvements | 15 years |
How Do MACRS Depreciation Rates Work?
The Modified Accelerated Cost Recovery System (MACRS) is the current IRS system for depreciating assets. MACRS assigns each asset to a “class life” (3, 5, 7, 15, 20, 27.5, or 39 years) and determines how much you can deduct each year. Residential rental property is always 27.5 years, while most commercial buildings are 39 years. For personal property, use the IRS MACRS tables to calculate your deduction based on cost, placed-in-service date, and class life. For a complete MACRS percentage table, see IRS Pub 946.
| Asset | Recovery Period | Year 1 % |
|---|---|---|
| Equipment | 5 years | 20% |
| Rental Property | 27.5 years | 3.485% |
| Commercial Real Estate | 39 years | 2.564% |
What Is the Section 179 Deduction?
Section 179 allows you to immediately expense the entire purchase price of qualifying equipment, machinery, or software in the year you place it in service, up to the annual limit. For 2026, the federal Section 179 deduction is $1,160,000, with a phase-out threshold of $4,670,000. Pennsylvania generally honors federal Section 179 limits, but always check for the latest state confirmation. Use Section 179 on assets like trucks, computers, shop/office equipment, and more—but not on real estate or permanent building structures.
How Can You Calculate Depreciation Deductions?
The key steps to calculate depreciation for Pennsylvania and federal tax returns are:
- Determine property cost basis (purchase price, less land, plus eligible improvements).
- Assign MACRS class life/recovery period.
- Apply eligible Section 179 or bonus depreciation, if desired.
- Use the MACRS table for your asset and year placed in service to compute the annual deduction.
- For real estate, remember to apply the mid-month convention your first year.
Try our Self-Employment Tax Calculator to estimate the impact of depreciation on your net income for 2026.
What Is Bonus Depreciation?
Bonus depreciation lets businesses deduct up to 100% of the cost of eligible new or used property with a class life of 20 years or less in the year it’s placed in service (for assets acquired before the law’s phaseout begins). For 2026, bonus depreciation remains at or near 100% for most property purchased new (with potential for phase-down, check latest IRS updates). This is a powerful supplement to MACRS and Section 179. Unlike Section 179, bonus depreciation can create a business loss and is available to companies of any size. Pennsylvania applies federal bonus depreciation rules for most businesses, but additional state worksheets may be required.
Cost Segregation Strategies
Cost segregation is an advanced tax strategy for real estate owners. By breaking out building components (like HVAC, lighting, and land improvements) into shorter recovery periods (5, 7, 15 years instead of 27.5 or 39), you accelerate deductions and put more cash in your pocket sooner. Typical cost segregation savings for Pennsylvania commercial properties range from $50,000 to $500,000, depending on project value and scope. A professional cost segregation study is recommended for maximum benefit and audit protection.
| Building Component | Recovery Period |
|---|---|
| Parking lot, fences | 15 years |
| Carpeting, cabinetry | 5/7 years |
| HVAC, wiring | 7/15 years |
| Structure, roof | 27.5/39 years |
Frequently Asked Questions
Can I depreciate land in Pennsylvania?
No. Land itself is not depreciable—but land improvements (like paving or landscaping) can be depreciated as 15-year property under MACRS.
How do I report depreciation on my Pennsylvania return?
Business owners and landlords attach PA-40 Schedule C or F and include federal depreciation schedules with their state tax return. Real estate investors also report asset purchases and disposals.
Can I combine Section 179 and bonus depreciation?
Yes. Apply Section 179 first, then bonus depreciation on any remaining eligible basis. Both methods can dramatically reduce taxable income for 2026.
Is cost segregation worth it for small properties?
Cost segregation is most valuable for properties valued over $750,000, but multifamily or mixed-use buildings may still benefit at lower thresholds.
What happens if I sell a depreciated property?
Depreciation recapture occurs. The gain up to your cumulative depreciation becomes ordinary income (up to 25%)—so accurate depreciation tracking is essential.
Who can help me plan my Pennsylvania depreciation schedule?
Our tax strategy team can structure the optimal schedule for your business or real estate portfolio.
Related Resources
- Pennsylvania Real Estate Investor Tax Strategies
- Tax Solutions for Business Owners
- Tax Planning Guides
- IRS Publication 946 (MACRS info)
Last updated: February 2026
This information is current as of 2/17/2026. Tax laws change frequently. Verify updates with the IRS (IRS.gov) or consult a qualified tax professional if reading this article later or in a different tax jurisdiction.
