What is straight-line depreciation?

Straight-line depreciation expenses an equal amount each year: Annual depreciation = (Cost − Salvage Value) / Useful Life. Example: $50,000 asset, $5,000 salvage, 5-year life → ($50,000 − $5,000) / 5 = $9,000/year. Book value drops from $50,000 to $5,000 over 5 years in equal $9,000 steps. Straight-line is the simplest method, most common for financial reporting, and best for assets that provide uniform benefit over their life (buildings, furniture).

What is declining balance (double-declining balance) depreciation?

Declining balance applies a fixed percentage to the remaining book value each year — accelerating depreciation early. Double-declining balance (DDB) uses 200% / useful life as the rate. Example: $50,000 asset, 5-year life → DDB rate = 40%. Year 1: 40% × $50,000 = $20,000. Year 2: 40% × $30,000 = $12,000. Year 3: 40% × $18,000 = $7,200. Depreciation never drops the book value below salvage value. DDB matches assets that lose value rapidly early (computers, vehicles). Some accountants switch to straight-line in later years when straight-line gives a higher deduction.

What is MACRS depreciation and who uses it?

MACRS (Modified Accelerated Cost Recovery System) is the IRS-mandated depreciation system for US federal income taxes. It uses pre-set recovery rates by asset class, assuming half-year convention in Year 1 and Year N+1. Common classes: 5-year (computers, cars, light trucks), 7-year (office furniture, most machinery), 3-year (tractors, small tools). MACRS is front-loaded (accelerated) to defer taxes. Salvage value is assumed zero. MACRS rates are fixed by IRS regulations — you cannot choose rates. Only used for US tax reporting, not GAAP financial statements.

What is sum-of-years' digits (SYD) depreciation?

Sum-of-years' digits is an accelerated method that fronts-loads depreciation using a declining fraction. For a 5-year asset: SYD = 1+2+3+4+5 = 15. Year 1 fraction = 5/15, Year 2 = 4/15, Year 3 = 3/15, Year 4 = 2/15, Year 5 = 1/15. Example: $50,000 asset, $5,000 salvage, 5 years → depreciable base = $45,000. Year 1: 5/15 × $45,000 = $15,000. Year 2: 4/15 × $45,000 = $12,000. SYD is more accelerated than straight-line but less accelerated than DDB in Year 1. Less commonly used than SL or DDB.

How does depreciation reduce taxes?

Depreciation is a non-cash expense that reduces taxable income each year. If you depreciate $20,000 in Year 1 and your tax rate is 25%, you save $5,000 in taxes that year. The total tax savings over the life of the asset is the same regardless of method (total depreciation = Cost − Salvage). However, accelerated methods (DDB, MACRS) front-load deductions, which is better due to time value of money — saving taxes now is worth more than saving taxes later. Section 179 and bonus depreciation (US) allow immediate 100% expensing of qualifying assets in Year 1.

What is book value and how is it used?

Book value = Original Cost − Accumulated Depreciation. It represents the asset's carrying value on the balance sheet — not necessarily its market value or replacement cost. When an asset is sold, gain/loss = Sale Price − Book Value. Example: sell a $50,000 asset with $30,000 accumulated depreciation for $25,000 → Book value = $20,000 → Gain = $25,000 − $20,000 = $5,000 (taxable). Book value reaching zero (or salvage value) means the asset is fully depreciated. It can still be used operationally — a fully depreciated asset just has zero book value.

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Depreciation Calculator

Straight-line: (Cost − Salvage) / Life — equal annual charge. Example: $50,000 asset, $5,000 salvage, 5 years = $9,000/year. Double-declining balance: 200%/Life × Book Value — front-loaded. MACRS: IRS pre-set rates, half-year convention, zero salvage — 5-year class: 20%, 32%, 19.2%, 11.52%, 11.52%, 5.76%. Sum-of-years' digits: (Remaining/SYD) × depreciable base. Accelerated methods defer taxes by giving larger deductions early.

Calculate asset depreciation using straight-line, declining balance, sum-of-years' digits, or MACRS methods. Enter asset cost, salvage value, and useful life to get an annual depreciation schedule with book value at the end of each year. Includes MACRS 3-, 5-, 7-, and 10-year classes for US tax purposes.

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Asset Details

Depreciation Method

Asset Cost ($)

Salvage Value ($)

Useful Life (years)

Summary

First-Year Depreciation

$9,000.00

18.00% of asset cost

Total Depreciation

$45,000.00

Years in Schedule

Final Book Value

$5,000.00

Depreciation Schedule

Year	Depreciation	Accumulated	Book Value
Year 1	$9,000.00	$9,000.00	$41,000.00
Year 2	$9,000.00	$18,000.00	$32,000.00
Year 3	$9,000.00	$27,000.00	$23,000.00
Year 4	$9,000.00	$36,000.00	$14,000.00
Year 5	$9,000.00	$45,000.00	$5,000.00

Methods: Straight-line: (Cost − Salvage) / Life — equal annual charge. Declining balance: Book value × rate — accelerated, front-loaded. Sum-of-years' digits: (Remaining life / SYD) × depreciable base — accelerated. MACRS: IRS-mandated half-year convention rates for US tax purposes (salvage = $0).

How to Use

1
Choose a depreciation method
Select Straight-Line for financial reporting (equal annual charge). Choose Declining Balance for assets that lose value quickly (vehicles, computers). Use MACRS for US tax reporting — it uses IRS-mandated rates.
2
Enter asset cost and salvage value
Asset cost is the total purchase price. Salvage value is the expected residual value at end of life (use $0 for MACRS). The difference is the depreciable base for straight-line and SYD methods.
3
Set useful life (if not MACRS)
For straight-line and sum-of-years, enter the expected useful life in years. For declining balance, also set the annual rate (200% of straight-line rate = double-declining balance).
4
Select MACRS class (if MACRS)
Choose the recovery class based on asset type: 5-year for computers and vehicles, 7-year for most office equipment and machinery. The calculator applies IRS half-year convention rates automatically.
5
Review the depreciation schedule
The table shows annual depreciation expense, accumulated depreciation, and ending book value for each year. First-year depreciation is highlighted for quick tax planning.

Frequently Asked Questions

What is straight-line depreciation?: Straight-line depreciation expenses an equal amount each year: Annual depreciation = (Cost − Salvage Value) / Useful Life. Example: $50,000 asset, $5,000 salvage, 5-year life → ($50,000 − $5,000) / 5 = $9,000/year. Book value drops from $50,000 to $5,000 over 5 years in equal $9,000 steps. Straight-line is the simplest method, most common for financial reporting, and best for assets that provide uniform benefit over their life (buildings, furniture).
What is declining balance (double-declining balance) depreciation?: Declining balance applies a fixed percentage to the remaining book value each year — accelerating depreciation early. Double-declining balance (DDB) uses 200% / useful life as the rate. Example: $50,000 asset, 5-year life → DDB rate = 40%. Year 1: 40% × $50,000 = $20,000. Year 2: 40% × $30,000 = $12,000. Year 3: 40% × $18,000 = $7,200. Depreciation never drops the book value below salvage value. DDB matches assets that lose value rapidly early (computers, vehicles). Some accountants switch to straight-line in later years when straight-line gives a higher deduction.
What is MACRS depreciation and who uses it?: MACRS (Modified Accelerated Cost Recovery System) is the IRS-mandated depreciation system for US federal income taxes. It uses pre-set recovery rates by asset class, assuming half-year convention in Year 1 and Year N+1. Common classes: 5-year (computers, cars, light trucks), 7-year (office furniture, most machinery), 3-year (tractors, small tools). MACRS is front-loaded (accelerated) to defer taxes. Salvage value is assumed zero. MACRS rates are fixed by IRS regulations — you cannot choose rates. Only used for US tax reporting, not GAAP financial statements.
What is sum-of-years' digits (SYD) depreciation?: Sum-of-years' digits is an accelerated method that fronts-loads depreciation using a declining fraction. For a 5-year asset: SYD = 1+2+3+4+5 = 15. Year 1 fraction = 5/15, Year 2 = 4/15, Year 3 = 3/15, Year 4 = 2/15, Year 5 = 1/15. Example: $50,000 asset, $5,000 salvage, 5 years → depreciable base = $45,000. Year 1: 5/15 × $45,000 = $15,000. Year 2: 4/15 × $45,000 = $12,000. SYD is more accelerated than straight-line but less accelerated than DDB in Year 1. Less commonly used than SL or DDB.
How does depreciation reduce taxes?: Depreciation is a non-cash expense that reduces taxable income each year. If you depreciate $20,000 in Year 1 and your tax rate is 25%, you save $5,000 in taxes that year. The total tax savings over the life of the asset is the same regardless of method (total depreciation = Cost − Salvage). However, accelerated methods (DDB, MACRS) front-load deductions, which is better due to time value of money — saving taxes now is worth more than saving taxes later. Section 179 and bonus depreciation (US) allow immediate 100% expensing of qualifying assets in Year 1.
What is book value and how is it used?: Book value = Original Cost − Accumulated Depreciation. It represents the asset's carrying value on the balance sheet — not necessarily its market value or replacement cost. When an asset is sold, gain/loss = Sale Price − Book Value. Example: sell a $50,000 asset with $30,000 accumulated depreciation for $25,000 → Book value = $20,000 → Gain = $25,000 − $20,000 = $5,000 (taxable). Book value reaching zero (or salvage value) means the asset is fully depreciated. It can still be used operationally — a fully depreciated asset just has zero book value.