Depreciation Calculator
Calculate asset depreciation using straight-line, declining balance, or sum-of-years-digits methods. Adjust the sliders to instantly see depreciation schedules, book value progression, and compare methods side-by-side.
Asset Details
Book Value Over Time
Asset book value declining from original cost to salvage value over the useful life.
Depreciation Schedule
Year-by-year breakdown of depreciation expense, accumulated depreciation, and book value.
| Year | Depreciation Expense | Accumulated Depreciation | Book Value |
|---|
Method Comparison
Compare first-year and total depreciation across all three methods for the same asset.
Straight-Line
Declining Balance (2x)
Sum-of-Years-Digits
Depreciation Methods Explained
Straight-Line Depreciation
The simplest and most common method. Annual depreciation is constant throughout the asset's life:
Annual Depreciation = (Cost - Salvage Value) / Useful Life
Example: A $50,000 vehicle with $5,000 salvage value over 5 years depreciates $9,000 per year.
Best for: Assets that lose value steadily over time, such as buildings, furniture, or fixtures. Required for financial reporting under GAAP for most assets.
Declining Balance Depreciation
An accelerated method that applies a fixed percentage to the remaining book value each year. Double-declining balance (200%) is most common:
Rate = (Multiplier / Useful Life) × 100%
Annual Depreciation = Book Value × Rate
Example: A 5-year asset uses a 40% rate (2 / 5). Year 1: $50,000 × 40% = $20,000. Year 2: $30,000 × 40% = $12,000.
Best for: Assets that lose value rapidly in early years, such as vehicles, computers, and technology equipment. Provides larger tax deductions early.
Sum-of-Years-Digits Depreciation
A moderate acceleration method using a declining fraction based on remaining life:
Sum of Years = n(n+1)/2
Year Fraction = (Remaining Life / Sum of Years)
Annual Depreciation = Depreciable Base × Fraction
Example: A 5-year asset has a sum of 15 (1+2+3+4+5). Year 1 uses 5/15, Year 2 uses 4/15, Year 3 uses 3/15, etc.
Best for: Assets with moderate early obsolescence, falling between straight-line and declining balance in depreciation speed.
Key Depreciation Concepts
Depreciable Base
The total amount to be depreciated over the asset's life, calculated as Cost - Salvage Value. If you buy a $50,000 truck expecting to sell it for $5,000, the depreciable base is $45,000.
Book Value
The net carrying value of an asset on the balance sheet, calculated as Original Cost - Accumulated Depreciation. Book value decreases each year until it reaches salvage value.
Accumulated Depreciation
The cumulative total of all depreciation expense recorded since the asset was acquired. This is a contra-asset account that reduces the asset's book value on the balance sheet.
Salvage Value
The estimated resale or scrap value at the end of useful life. Setting salvage value to zero is common when assets have no expected resale value or when taking a conservative approach.
When to Use Each Method
Use Straight-Line When:
- Asset value declines steadily over time (buildings, furniture, fixtures)
- Simplicity is preferred for financial reporting
- Required for GAAP financial statements for most assets
- Asset usage is consistent year-to-year
Use Declining Balance When:
- Asset loses value rapidly in early years (vehicles, computers, machinery)
- Maximizing early-year tax deductions is important for cash flow
- Asset becomes obsolete or requires more maintenance over time
- Matching depreciation to actual value decline is a priority
Use Sum-of-Years-Digits When:
- Moderate acceleration is desired (between straight-line and declining balance)
- Asset has predictable declining productivity or efficiency
- Smoother acceleration than declining balance is preferred
- Allowed for tax purposes and matches economic reality
Tax vs. Book Depreciation
Businesses often use different depreciation methods for tax returns and financial statements:
- Tax Depreciation (US): Most businesses use MACRS (Modified Accelerated Cost Recovery System), which assigns assets to recovery periods and uses IRS-prescribed tables. MACRS maximizes tax deductions.
- Book Depreciation: For financial reporting (GAAP), companies typically use straight-line depreciation to show consistent expenses and avoid volatility in earnings.
- Deferred Taxes: Using different methods creates temporary differences that result in deferred tax liabilities or assets on the balance sheet.
This calculator models traditional methods for educational and planning purposes. Consult a CPA or tax professional for tax depreciation calculations.
Frequently Asked Questions
What is depreciation in accounting?
Depreciation is the systematic allocation of an asset's cost over its useful life. It recognizes that assets like equipment, vehicles, and buildings lose value over time due to wear, obsolescence, or usage. Depreciation is a non-cash expense that reduces taxable income and matches the cost of an asset to the revenue it generates.
What is straight-line depreciation?
Straight-line depreciation spreads the cost of an asset evenly across its useful life. The formula is: (Asset Cost - Salvage Value) / Useful Life. For example, a $10,000 asset with a $1,000 salvage value over 5 years depreciates $1,800 per year. This is the simplest and most commonly used method.
What is declining balance depreciation?
Declining balance depreciation accelerates depreciation by applying a fixed percentage to the remaining book value each year. The double-declining balance method uses 2 / Useful Life as the rate. For example, a 5-year asset uses 40% per year. This method results in higher depreciation expenses in early years and lower expenses later.
What is sum-of-years-digits depreciation?
Sum-of-years-digits (SYD) is an accelerated depreciation method that front-loads depreciation expenses. The formula uses a fraction: (Remaining Life / Sum of Years) × Depreciable Base. For a 5-year asset, the sum is 15 (1+2+3+4+5). Year 1 uses 5/15, Year 2 uses 4/15, and so on. This method falls between straight-line and declining balance in acceleration.
When should I use accelerated depreciation?
Use accelerated depreciation (declining balance or sum-of-years-digits) for assets that lose value quickly in early years, such as vehicles, computers, or technology equipment. Accelerated methods also provide larger tax deductions in early years, improving cash flow. Straight-line is better for assets that decline steadily, like buildings or furniture.
What is salvage value?
Salvage value (also called residual value or scrap value) is the estimated amount an asset will be worth at the end of its useful life. It represents what you expect to recover when you sell or dispose of the asset. Depreciable base = Cost - Salvage Value. Salvage value is often set to zero for simplicity or if the asset has no resale value.
How does depreciation affect taxes?
Depreciation is a deductible business expense that reduces taxable income. Accelerated methods provide larger deductions in early years, deferring taxes and improving cash flow. However, depreciation does not affect cash — it is a non-cash accounting entry. Tax depreciation rules (like MACRS in the US) may differ from book depreciation for financial reporting.
What is book value?
Book value (or carrying value) is the net value of an asset on the balance sheet, calculated as Original Cost - Accumulated Depreciation. It represents the remaining unamortized cost. When an asset is fully depreciated, its book value equals its salvage value. Book value is used for accounting purposes and may differ from market value.
Can I change depreciation methods after starting?
In general, once you choose a depreciation method for an asset, you should continue using it consistently. Changing methods requires justification and may need regulatory approval. For tax purposes, the IRS has specific rules about switching methods. Always consult an accountant before making changes to depreciation methods.
What is the MACRS depreciation system?
MACRS (Modified Accelerated Cost Recovery System) is the current tax depreciation system in the United States. It assigns assets to recovery periods (3, 5, 7, 10, 15, 20, 27.5, or 39 years) and uses prescribed tables. MACRS combines declining balance and straight-line methods. Most businesses use MACRS for tax purposes and straight-line or other methods for financial reporting.
Does this calculator store my data?
No. All calculations run entirely in your browser using JavaScript. No data is sent to any server.
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Privacy & Limitations
- Client-side only. No data is sent to any server. No cookies, no tracking. All calculations run in your browser using JavaScript.
- Educational purposes. This calculator demonstrates traditional depreciation methods. Tax depreciation rules (MACRS, Section 179, bonus depreciation) differ and require professional guidance.
- Does not account for mid-year conventions. Real tax depreciation uses half-year, mid-quarter, or mid-month conventions depending on when assets are placed in service. This calculator assumes full-year depreciation.
- Simplified declining balance. The calculator uses pure declining balance. In practice, businesses often switch to straight-line in later years to fully depreciate the asset.
- Not financial or tax advice. Always consult a licensed CPA or tax professional for depreciation decisions affecting your business taxes or financial statements.
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Depreciation Calculator FAQ
What is depreciation in accounting?
Depreciation is the systematic allocation of an asset's cost over its useful life. It recognizes that assets like equipment, vehicles, and buildings lose value over time due to wear, obsolescence, or usage. Depreciation is a non-cash expense that reduces taxable income and matches the cost of an asset to the revenue it generates.
What is straight-line depreciation?
Straight-line depreciation spreads the cost of an asset evenly across its useful life. The formula is: (Asset Cost - Salvage Value) / Useful Life. For example, a $10,000 asset with a $1,000 salvage value over 5 years depreciates $1,800 per year. This is the simplest and most commonly used method.
What is declining balance depreciation?
Declining balance depreciation accelerates depreciation by applying a fixed percentage to the remaining book value each year. The double-declining balance method uses 2 / Useful Life as the rate. For example, a 5-year asset uses 40% per year. This method results in higher depreciation expenses in early years and lower expenses later.
What is sum-of-years-digits depreciation?
Sum-of-years-digits (SYD) is an accelerated depreciation method that front-loads depreciation expenses. The formula uses a fraction: (Remaining Life / Sum of Years) × Depreciable Base. For a 5-year asset, the sum is 15 (1+2+3+4+5). Year 1 uses 5/15, Year 2 uses 4/15, and so on. This method falls between straight-line and declining balance.
When should I use accelerated depreciation?
Use accelerated depreciation (declining balance or sum-of-years-digits) for assets that lose value quickly in early years, such as vehicles, computers, or technology equipment. Accelerated methods also provide larger tax deductions in early years, improving cash flow. Straight-line is better for assets that decline steadily, like buildings or furniture.
What is salvage value?
Salvage value (also called residual value or scrap value) is the estimated amount an asset will be worth at the end of its useful life. It represents what you expect to recover when you sell or dispose of the asset. Depreciable base = Cost - Salvage Value. Salvage value is often set to zero for simplicity or if the asset has no resale value.
How does depreciation affect taxes?
Depreciation is a deductible business expense that reduces taxable income. Accelerated methods provide larger deductions in early years, deferring taxes and improving cash flow. However, depreciation does not affect cash — it is a non-cash accounting entry. Tax depreciation rules (like MACRS in the US) may differ from book depreciation for financial reporting.
What is book value?
Book value (or carrying value) is the net value of an asset on the balance sheet, calculated as Original Cost - Accumulated Depreciation. It represents the remaining unamortized cost. When an asset is fully depreciated, its book value equals its salvage value. Book value is used for accounting purposes and may differ from market value.
Can I change depreciation methods after starting?
In general, once you choose a depreciation method for an asset, you should continue using it consistently. Changing methods requires justification and may need regulatory approval. For tax purposes, the IRS has specific rules about switching methods. Always consult an accountant before making changes to depreciation methods.
What is the MACRS depreciation system?
MACRS (Modified Accelerated Cost Recovery System) is the current tax depreciation system in the United States. It assigns assets to recovery periods (3, 5, 7, 10, 15, 20, 27.5, or 39 years) and uses prescribed tables. MACRS combines declining balance and straight-line methods. Most businesses use MACRS for tax purposes and straight-line or other methods for financial reporting.
Does this calculator store my data?
No. All calculations run entirely in your browser. No data is sent to any server, and nothing is stored.