Fixed assets and depreciation basics: US and Canada

Want the numbers for one asset? Our free depreciation calculator builds a MACRS, straight-line, declining-balance or CCA schedule year by year.

What a fixed asset is

A fixed asset is something the business buys to use for more than a year, not to resell: a truck, a laptop, machinery, furniture, a building. Because it helps earn income over several years, accounting spreads its cost over those years instead of treating it all as this month's expense. That spreading is depreciation in the books and in the US tax return, and capital cost allowance (CCA) in a Canadian one.

Land is the exception: it is a fixed asset but it is not depreciated. When you buy a building, split the price between land and building.

Expense it or capitalize it?

Not every purchase over a year's life needs to go on the asset list. A $40 stapler lasts years, but tracking it as an asset is pointless. Most businesses set a capitalization threshold: anything under it is expensed when bought.

• United States: the IRS de minimis safe harbor lets you deduct items costing up to $2,500 per invoice or item, or $5,000 if you have an applicable financial statement (generally audited statements). It is an election made each year with a statement attached to your return, and it should match the policy you follow in your books.
• Canada: there is no general dollar threshold, but Class 12 lets you write off in full many small items costing less than $500, such as small tools, kitchen utensils and uniforms. Most other equipment goes into a CCA class.

Repairs that keep something working are expenses. Improvements that make it better, bigger or last longer are usually added to the asset.

Buying a $12,000 machine for cash looks like this. No expense yet: one asset has turned into another.

If it was financed, the credit goes to the loan instead; see how to record a business loan.

Book depreciation

Your books and your tax return can depreciate the same asset differently, and often do. Book depreciation aims to show what the asset costs you each year it is used. The usual method for a small business is straight-line: cost, less what you expect to sell it for at the end (salvage value), divided by its useful life.

For the $12,000 machine with a five-year life and no salvage value, that is $2,400 a year:

Accumulated depreciation is a contra-asset: it sits under the asset on the balance sheet, so cost less accumulated depreciation gives the book value, $9,600 after year one. Record it at year-end, or monthly ($200) if you produce monthly statements. When you sell or scrap the asset, remove both its cost and its accumulated depreciation, and the difference from what you received is a gain or loss.

Many small businesses simply book the same figure the tax return claims, so there is one number to keep. That is fine for owner-managed books; your accountant will say if lenders or investors need something else.

US tax: Section 179, bonus and MACRS

For tax, the IRS gives you three ways to deduct the cost, used in this order:

• Section 179 lets you elect to deduct the cost of qualifying equipment in the year it is placed in service. For tax years beginning in 2026 the limit is $2,560,000, reduced dollar for dollar once you place more than $4,090,000 of such property in service in the year. The deduction cannot exceed your business taxable income; the excess carries forward. SUVs are capped at $32,000.
• Bonus depreciation (the special depreciation allowance) is now a permanent 100% for qualified property acquired after January 19, 2025, under the One Big Beautiful Bill Act, as the IRS set out in Notice 2026-11. Unlike Section 179, it is not limited by income, and you can elect out of it by class of property.
• MACRS is the regular schedule for whatever is left. Each asset has a recovery period: 5 years for cars, light trucks and computers, 7 years for office furniture and most machinery, 27.5 years for residential rental buildings and 39 years for other buildings. A half-year convention normally applies in the first year; if more than 40% of the year's purchases fall in the last quarter, a mid-quarter convention applies instead.

With 100% bonus available, the $12,000 machine can usually be deducted in full in 2026, while your books still show $2,400 a year. That difference is normal. Writing everything off at once is not always wise, though: it can waste a deduction in a low-income year that would be worth more later, and selling the asset later can bring part of the deduction back as income. Depreciation and Section 179 are claimed on Form 4562. Passenger cars have their own annual limits, and listed property used partly for personal purposes has extra rules; see IRS Publication 946.

Canada: capital cost allowance

The CRA does not use your book depreciation. Instead, each asset goes into a CCA class with a set rate, and you claim up to that rate on the class's undepreciated balance each year, on a declining-balance basis. You can claim less than the maximum, or nothing, in any year.

The half-year rule normally allows only half the usual claim in the year you buy an asset. For the $12,000 machine in Class 8, that is $12,000 × 20% × 50% = $1,200 in year one.

The Accelerated Investment Incentive suspends the half-year rule and allows up to one and a half times the normal first-year claim, so up to three times the usual half-year amount: $3,600 for the same machine. It does not increase the total you claim over the asset's life, only brings it forward. Budget 2025 reinstated the incentive for eligible property acquired after 2024 that becomes available for use before 2030, through Bill C-15, which received royal assent in March 2026. Some equipment, such as manufacturing and processing machinery and certain clean energy equipment, can be written off immediately.

The temporary immediate expensing of up to $1.5 million a year has ended: it covered property that became available for use before 2024 for Canadian-controlled private corporations, and before 2025 for self-employed individuals. Sole proprietors claim CCA on the T2125, line 9936; see the T2125 guide. Corporations use Schedule 8 of the T2.

These rules change with budgets and have many conditions. Use this as a map, and let your accountant decide what to claim each year.

Records to keep

• For every asset: what it is, the date bought and put into use, cost including delivery and setup, and the invoice.
• How much was claimed each year for tax, separately from the book figure if they differ.
• Business-use percentage for anything also used personally, such as a vehicle.
• When it was sold, traded in or scrapped, and for how much.

AcboBooks has a Fixed Assets list with each asset's cost, accumulated depreciation and book value. It builds a straight-line schedule from cost, salvage value and life in years, and Record One Year posts the depreciation entry to the expense and accumulated depreciation accounts you choose, never below salvage value. An asset bought on credit can be linked to its loan, so you see the asset's book value next to the balance owed. It does not calculate MACRS, Section 179, bonus depreciation or CCA: those belong on the tax return, worked out by you or your accountant. If you want the books to match the tax figure, post that amount with a journal entry. Year-end is a good time to review the list; it is on the year-end closing checklist.