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Calculate asset depreciation over time using common methods like Straight-Line and Declining Balance.
Annual Depreciation
(First Year)
| Year | Beginning Book Value | Depreciation Expense | Ending Book Value |
|---|---|---|---|
| 1 | $50,000.00 | $9,000.00 | $41,000.00 |
| 2 | $41,000.00 | $9,000.00 | $32,000.00 |
| 3 | $32,000.00 | $9,000.00 | $23,000.00 |
| 4 | $23,000.00 | $9,000.00 | $14,000.00 |
| 5 | $14,000.00 | $9,000.00 | $5,000.00 |
Everything you need to know
Depreciation is a fundamental accounting concept that spreads the cost of an asset over its useful life. Understanding depreciation is essential for tax planning, financial reporting, and investment analysis.
Our depreciation calculator helps you:
Different methods spread asset costs differently over the useful life:
Spreads cost evenly across all years:
Annual Depreciation = (Asset Cost - Salvage Value) / Useful Life (years)
Book Value = Asset Cost - (Annual Depreciation × Years Elapsed)
Example: $50,000 equipment, 10-year life, $5,000 salvage value
Depreciates faster early years, slower later:
Annual Depreciation = Book Value × (Depreciation Rate)
Depreciation Rate = (1 / Useful Life) × Multiplier (commonly 2x for double declining balance)
Example: $50,000 equipment, 10-year life, 2× declining balance
Year 1 Rate = (1/10) × 2 = 20%
Year 1 Depreciation = $50,000 × 0.20 = $10,000
Year 1 Book Value = $50,000 - $10,000 = $40,000
Year 2 Depreciation = $40,000 × 0.20 = $8,000
Year 2 Book Value = $40,000 - $8,000 = $32,000
Year 3 Depreciation = $32,000 × 0.20 = $6,400
Year 3 Book Value = $32,000 - $6,400 = $25,600
Notice: Earlier years have larger deductions, later years smaller.
| Method | Year 1 | Year 5 | Total Deduction | Use Case |
|---|---|---|---|---|
| Straight-Line | $4,500 | $4,500 | $45,000 | Equipment, vehicles |
| Double Declining | $10,000 | $5,120 | $45,000 | Technology, computers |
| MACRS (Tax) | Varies | Varies | $45,000 | U.S. tax purposes |
| Sum-of-Years-Digits | $8,182 | $4,545 | $45,000 | Less common |
All methods result in same total deduction; only timing differs.
Modified Accelerated Cost Recovery System (MACRS) is required for U.S. tax returns:
Key Points:
Tax rates are published in IRS tables rather than calculated.
| Asset Type | Useful Life | Salvage Value |
|---|---|---|
| Computers | 3-5 years | 0-10% |
| Equipment | 5-10 years | 5-20% |
| Vehicles | 5-7 years | 10-30% |
| Furniture | 7-10 years | 10-20% |
| Buildings | 39 years (tax) | 0-10% |
| Machinery | 10-15 years | 5-15% |
$100,000 Asset, 5-Year Life, $20,000 Salvage
| Year | Straight-Line | Double Declining | Difference |
|---|---|---|---|
| 1 | $16,000 | $40,000 | -$24,000 (more deduction) |
| 2 | $16,000 | $24,000 | -$8,000 |
| 3 | $16,000 | $14,400 | -$1,600 |
| 4 | $16,000 | $8,640 | +$7,360 |
| 5 | $16,000 | -$8,640 (switch)* | 0 |
| Total | $80,000 | $80,000 | $0 |
*Double declining switches to straight-line when it becomes more favorable.
Depreciation is a non-cash expense (you don't pay anything), but it:
Example: $50,000 depreciation at 25% tax rate = $12,500 tax savings
With straight-line, yes. With MACRS (tax), no—salvage is assumed $0.
Most methods use half-year convention (6 months depreciation first year).
Generally no, not without IRS permission. Choose wisely upfront.
Both. Financial accounting uses one method (usually straight-line); taxes use MACRS.
Yes, if cash flow is constrained. More deductions = more tax savings now vs. later.
Asset is fully depreciated (book value = salvage value). Remove it from books or use revised estimates.