Depreciation Calculator

How to use this calculator

Four depreciation methods available via the tabs at the top. Select the one that matches what you’re calculating.

Asset Cost is what you paid for the asset, fully installed and ready for use. This includes purchase price, delivery, installation, and any other costs required to get the asset functioning. If you’re depreciating a machine, the cost includes shipping and setup.

Salvage Value is what you expect the asset to be worth at the end of its useful life, when you dispose of it or trade it in. This could be scrap value, resale value, or zero if you plan to dispose of it. For most equipment, a conservative estimate is 10% of cost. Some assets (technology, specialized machinery) have zero salvage value.

Useful Life is how many years you expect to use the asset. IRS MACRS guidelines provide standard useful lives for common asset categories: 5 years for cars and computers, 7 years for office furniture and equipment, 15 years for land improvements, 27.5 years for residential rental property, 39 years for commercial property. For book purposes, you can use your own estimate.

Declining Balance Rate (only for the Declining Balance tab) is the percentage applied to the remaining book value each year. A common choice is 150% of the straight-line rate: if the straight-line rate is 10% (for a 10-year asset), enter 15%.

Asset Category Presets — three pre-fill buttons set typical values for vehicles, equipment, and commercial buildings. Use them to get started quickly or as reference points.

The result shows Year 1 depreciation, the full depreciation schedule table, and a chart comparing book value decline across all four methods simultaneously.

The four methods explained

Each method answers the same question differently: how much of an asset’s value does it lose in a given year?

Straight-line spreads cost evenly. Equal annual expense for every year of useful life. Simple, transparent, widely used for financial reporting. The right choice when the asset generates consistent economic benefit year over year (commercial real estate, furniture, long-life equipment).

Declining balance front-loads expenses. Applies a fixed percentage to the book value remaining at the start of each year. Because you’re applying the rate to a shrinking base, the dollar amount decreases each year even though the rate stays constant. Suitable for assets that lose value faster in early years (certain vehicles, technology).

Double declining balance (DDB) is declining balance at twice the straight-line rate. An asset with a 10-year life has a straight-line rate of 10%. DDB uses 20%. Front-loading is more aggressive. Depreciation expense is highest in year 1 and declines quickly. Under IRS MACRS, this is close to the 200DB method used for most equipment.

Sum-of-years-digits (SYD) is another accelerated method. SYD = n × (n + 1) / 2, where n is the useful life. For a 5-year asset, SYD = 15. Year 1 gets 5/15 of the depreciable base, year 2 gets 4/15, and so on. Less aggressive than DDB but still front-loaded.

The choice between these methods is partly accounting convention and partly tax strategy. For book purposes, you want the method that best matches how the asset actually loses economic value. For tax purposes, you generally want the method that accelerates deductions to defer taxes. The two goals often pull in opposite directions, which is why most businesses maintain separate book and tax depreciation schedules.

The formulas

Straight-line:

Declining balance:

Depreciation stops when book value reaches salvage value.

Double declining balance:

Same formula as declining balance with this rate. Many DDB schedules switch to straight-line in later years when SL produces a larger deduction than DDB.

Sum-of-years-digits:

Real-world examples

Manufacturing equipment: straight-line vs DDB

A CNC machine costs $180,000. Salvage value: $15,000. Useful life: 10 years.

Commercial building

Purchase price: $2,400,000 (land value $300,000 excluded). Useful life: 39 years. Salvage value: $0 (IRS MACRS commercial property uses $0).

Vehicle: SYD vs straight-line comparison

Work van: $38,000 cost, $5,000 salvage value, 5-year life. SYD = 5×6/2 = 15.

Depreciation and taxes

Depreciation is a non-cash expense that reduces taxable income. That’s the key point. You don’t write a check for depreciation. It’s an accounting allocation of a cost you already paid.

For a business taxed at 25%, every $10,000 of depreciation reduces the current year’s tax bill by $2,500. That’s not $2,500 saved permanently — the tax is deferred, not eliminated (when you sell the asset, you may face recapture). But cash today is worth more than cash later, so accelerating depreciation deductions is genuinely valuable.

Section 179 (US) allows immediate expensing of qualifying equipment up to $1,160,000 (2023 limit). Bonus depreciation allows additional first-year deductions above the Section 179 cap. Under 100% bonus depreciation years (which phased down from 2023), businesses could deduct the entire cost of qualifying assets in year 1.

These IRS provisions make the first-year depreciation question material for any equipment purchase over $50,000. The calculator shows the standard methods; for Section 179 or bonus depreciation planning, use the first-year figure as input into tax projections.

Partial-year depreciation

Assets placed in service mid-year don’t get a full year of depreciation in year 1. The IRS MACRS rules use two conventions:

Half-year convention: all assets placed in service during the year are treated as placed in service at the mid-point of the year. You get half a year of depreciation in year 1 and half a year of depreciation in the final year. Most personal property uses this.

Mid-quarter convention: if more than 40% of the total cost of personal property placed in service during the year was placed in service in the fourth quarter, the mid-quarter convention applies. Each quarter’s assets are treated as placed in service at the mid-point of that quarter. This is designed to prevent taxpayers from loading year-end asset purchases to grab maximum first-year deductions.

For financial accounting (book depreciation rather than tax), companies often prorate based on actual days in service. An asset placed in service on April 1 gets 9/12 of a full year in year 1.

This calculator uses full-year amounts for simplicity. For tax return purposes, adjust the first-year figure using the applicable convention:

Component depreciation

Large assets aren’t always depreciated as a single unit. A commercial building has components with different useful lives: the roof (20 years), HVAC systems (15 years), interior fit-out (10 years), and the structure itself (39 years).

Cost segregation studies identify these components and separate them into shorter-life categories, accelerating depreciation legally. For a $2M building, a cost segregation study might reclassify $300,000 of costs into 5-7 year property, producing $60,000+ in additional first-year deductions compared to straight 39-year depreciation.

Run the calculator separately for each component using its specific useful life and method to model this.

Common mistakes

Including land in the depreciable base. Land doesn’t wear out. It’s not depreciable. If you bought a commercial property for $1.5 million and the land is worth $200,000, the depreciable base is $1,300,000. Including the land overstates annual deductions, which creates problems at audit.

Using the wrong useful life. The IRS specifies MACRS asset classes with predetermined lives. Using a 10-year life for an asset the IRS classifies as 5-year property (like most computers and vehicles) is an error. For book purposes, you have more flexibility, but it should reflect economic reality.

Not switching to straight-line under DDB. When DDB produces less depreciation than the remaining cost divided by remaining years, you switch to straight-line. Not making that switch underestimates depreciation in later years and leaves depreciable basis on the table.

Forgetting mid-year conventions. IRS MACRS uses half-year and mid-quarter conventions that reduce first-year depreciation below the full annual amount. If you place an asset in service in July, you don’t get a full year of depreciation. The calculator uses full-year amounts; adjust the first year manually if filing a tax return.

The bottom line

Depreciation doesn’t change the cash you spent buying an asset. It spreads that cost over time in your financial statements and tax returns.

The method you choose affects how much expense you recognize each year, which affects reported profit, tax liability, and the asset’s stated book value. Straight-line is the right choice for assets that generate value evenly over time. Accelerated methods are better for assets that lose value quickly or when you want to maximize early-year tax deductions.

Run the schedule table across all four methods for any significant asset purchase. The total depreciation over the full useful life is identical regardless of method (it always equals cost minus salvage value). The difference is only timing, and timing has a real cost-of-money value.