Depreciation Calculator
Calculate asset depreciation using multiple methods.
The Depreciation Calculator shows how to allocate the cost of a business asset over its useful life for accounting and tax purposes. Compare four methods (straight-line, declining balance, double declining, and sum-of-years-digits) to understand how different depreciation strategies affect annual deductions and taxable income.
Examples
Equipment Depreciation
Frequently Asked Questions
Which depreciation method should I use?
What is salvage value?
Can I change depreciation methods?
Quick Tips
- •For tax purposes in the US, use MACRS depreciation schedules (not shown here) as they are required by the IRS.
- •Accelerated depreciation methods (double declining, sum-of-years) provide larger early deductions, reducing taxes sooner.
- •Straight-line depreciation is simplest for accounting and spreads deductions evenly, making profits easier to forecast.
- •Document the asset cost, purchase date, expected salvage value, and useful life for audit purposes.
- •Review and adjust salvage value estimates annually. If an asset becomes worthless before the end of useful life, write it off immediately.
The Depreciation Calculator shows how to allocate the cost of a business asset over its useful life for accounting and tax purposes. Compare four methods (straight-line, declining balance, double declining, and sum-of-years-digits) to understand how different depreciation strategies affect annual deductions and taxable income.
How to Use This Calculator
Enter the asset cost, estimated salvage (residual) value, and useful life in years. Select a depreciation method to see the annual depreciation expense, accumulated depreciation, and book value for each year. Compare methods to find the best approach for your tax or accounting needs.
Understanding the Formula
Straight-Line: (Cost - Salvage) / Useful Life. Double Declining: Book Value x (2 / Useful Life). Sum-of-Years: (Cost - Salvage) x (Remaining Life / Sum of Years Digits).
Examples
Equipment Depreciation
A $50,000 machine with a $5,000 salvage value and 10-year useful life. Straight-line depreciation is ($50,000 - $5,000) / 10 = $4,500 per year. Double declining starts at $10,000 in year 1 and decreases each year.
Frequently Asked Questions
Which depreciation method should I use?
Straight-line is simplest and spreads cost evenly. Accelerated methods (double declining, sum-of-years) front-load depreciation for higher early deductions. MACRS is required for US tax purposes.
What is salvage value?
Salvage value (residual value) is the estimated amount an asset will be worth at the end of its useful life. It reduces the total amount that can be depreciated.
Can I change depreciation methods?
For accounting purposes, changing methods requires disclosure and may need to be applied retroactively. For tax purposes, methods are generally fixed once selected, though switching from declining balance to straight-line is common.
Assumptions & Limitations
- Salvage value is a fixed estimate; actual residual values may differ based on market conditions and asset condition.
- Useful life is constant; assets may become obsolete before or last longer than the estimated useful life.
- Book value is for accounting purposes only; actual market value may differ significantly from calculated book value.
- Does not include impairment adjustments; if asset value drops suddenly, book value may need downward adjustment.
- Tax depreciation may differ from book depreciation. MACRS (Modified Accelerated Cost Recovery System) is required for US tax returns.