What depreciation is
Depreciation spreads the cost of a long-lived asset, like a machine, a vehicle, a computer or office furniture, over the years you use it. Instead of booking the whole purchase as an expense in the year you pay for it, you expense a part of it each year. What is left on the balance sheet is the book value: the asset cost minus all depreciation so far. At the end of the useful life, the book value equals the salvage value.
Three inputs drive every schedule: the asset cost, the salvage value you expect at the end and the useful life in years. The method decides how the depreciable amount (cost minus salvage) is split across those years.
The three methods and their formulas
- Straight line writes off the same amount every year. It is easy to explain and the default for most companies.
- Declining balance applies a fixed rate to the book value at the start of each year. With a factor of 2, called double declining balance, a 5-year asset loses 40% of its book value each year. With 1.5 it is 30%. The rate ignores salvage value, so this calculator stops at salvage value and switches to straight line for the remaining years as soon as that gives the larger amount.
- Sum of the years digits adds the years of life (1 + 2 + 3 + 4 + 5 = 15 for five years) and depreciates 5/15 of the depreciable amount in year one, 4/15 in year two and so on. It is front-loaded too, but falls in even steps.
Methods compared
Yearly depreciation for an asset that costs $10,000, has a $1,000 salvage value and a useful life of 5 years:
| Year | Straight line | Double declining | 150% declining | Sum of years |
|---|---|---|---|---|
| 1 | $1,800 | $4,000 | $3,000 | $3,000 |
| 2 | $1,800 | $2,400 | $2,100 | $2,400 |
| 3 | $1,800 | $1,440 | $1,470 | $1,800 |
| 4 | $1,800 | $864 | $1,215 | $1,200 |
| 5 | $1,800 | $296 | $1,215 | $600 |
All four reach the same $9,000 in total and end at a $1,000 book value. The difference is timing: the accelerated methods show lower profits early and higher profits later. In the 150% column the switch to straight line happens in year 4, which is why years 4 and 5 are equal.
Accounting vs tax depreciation
This calculator is for accounting estimates, budgeting and comparing methods. Tax depreciation follows separate rules. In the US, most business assets are depreciated for taxes with MACRS, which assigns fixed recovery periods by asset class, uses conventions like half-year or mid-quarter, ignores salvage value and can be combined with extra first-year deductions. Other countries publish their own tables and rates. Use the official guidance or a tax professional for your return.
How to use the depreciation calculator
- 1Pick a method: straight line, declining balance or sum of the years digits, and your currency.
- 2Enter the asset cost, the salvage value and the useful life in years. For declining balance choose the rate, for straight line the month the asset was placed in service.
- 3Read the first-year depreciation, then check the full schedule and the chart of book value year by year. Copy the result or share a link.
Frequently asked questions
What is salvage value?
Salvage value, also called residual or scrap value, is what you expect the asset to be worth at the end of its useful life, for example what you could sell a used machine for. Depreciation only spreads the difference between cost and salvage value over the years. If you expect nothing back, enter 0.
Which depreciation method should I use?
Straight line is the simplest and the most common, and fits assets that wear out evenly, like furniture or buildings. Declining balance and sum of the years digits put more of the cost into the early years, which suits assets that lose value fast, like vehicles, computers and other technology.
Why does declining balance switch to straight line?
Declining balance takes a fixed percentage of a shrinking book value, so the yearly amount keeps getting smaller and never quite reaches the salvage value. Once spreading the remaining amount evenly over the remaining years gives more, the schedule switches to that, so the asset is fully depreciated at the end of its useful life.
Can I use this for my tax return?
Only as a rough guide. Tax depreciation follows its own rules. In the US that is mostly MACRS, which sets fixed recovery periods and conventions, ignores salvage value and may allow extra first-year deductions. Other countries have their own tables. Ask a tax professional or use the official guidance for your return.
What happens when an asset is bought in the middle of the year?
For straight line, pick the month it was placed in service. The first year then only gets the months from that month to the end of the year, for example 10 of 12 months from March, and the rest is taken in an extra year at the end. Your fiscal year may start in a month other than January; count the months the same way.