Depreciation

Depreciation Calculator Calculate asset depreciation using Straight-Line, Declining Balance, or Sum-of-Years'-Digits ...

Depreciation Calculator

Calculate asset depreciation using Straight-Line, Declining Balance, or Sum-of-Years'-Digits methods. Understand book value, tax deductions, and financial reporting impact.

Asset Cost ($)

Salvage Value ($)

Useful Life (Years)

Straight-Line

Declining Balance

Sum-of-Years'-Digits

Decline Rate (%) — e.g., 200% = Double Declining

Depreciation Summary

Total Depreciable Amount: $0

Annual Depreciation (Avg.): $0

First-Year Depreciation: $0

Book Value at End (Year 10): $0

Depreciation Over Time — Straight-Line

Book Value

Annual Depreciation

Year	Depreciation	Accumulated	Book Value

What is Depreciation?

Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. It reflects the decline in value due to wear and tear, usage, or obsolescence.

Depreciation is not a cash expense, but it reduces taxable income — making it a powerful tax planning tool. The IRS allows businesses to deduct depreciation annually, spreading the cost of large purchases (e.g., vehicles, machinery, buildings) over many years.

Example: A $50,000 machine with a $5,000 salvage value and 10-year life has $45,000 of depreciable value. Using straight-line, you’d deduct $4,500/year for 10 years.

Depreciation Methods Explained

1. Straight-Line (SL)

Formula: (Cost – Salvage) / Life

Equal depreciation each year. Simple, predictable, and most commonly used for financial reporting.

2. Declining Balance (DB)

Formula: Book Value × (Decline Rate / Life)

Accelerated method — higher deductions early. Popular for tax purposes (e.g., 200% DB = Double Declining Balance). Often switches to SL in later years to maximize deductions.

3. Sum-of-Years'-Digits (SYD)

Formula: (Remaining Life / SYD) × Depreciable Amount

Another accelerated method. SYD = n(n+1)/2. For 5 years: 5+4+3+2+1 = 15.

Note: IRS typically requires specific methods (e.g., MACRS for most business assets), but this calculator uses standard accounting methods for estimation.

Tax & Accounting Implications

• Tax Deduction: Depreciation reduces taxable income, lowering tax liability — especially valuable in high-income years.
• Matching Principle: In accounting, depreciation matches the cost of an asset to the revenue it helps generate.
• Book vs. Tax Depreciation: Companies may use SL for financial statements (conservative) and DB for taxes (aggressive) — this is allowed under GAAP and IRS rules.
• Section 179 & Bonus Depreciation: The IRS allows immediate expensing of qualifying assets (up to $1,220,000 in 2025), bypassing traditional depreciation. This calculator does not include these — consult a CPA for real tax planning.

Warning: Depreciation recapture may apply when selling an asset for more than its book value — the gain is taxed as ordinary income, not capital gains.

How to Use This Calculator

1. Enter the Asset Cost (purchase price + setup/installation).
2. Estimate the Salvage Value (what you expect to sell it for at end of life).
3. Set the Useful Life in years (IRS class lives: e.g., 5 yrs for computers, 7 for office furniture, 27.5 for residential rental property).
4. Select a Depreciation Method using the tabs.
5. For Declining Balance, adjust the Decline Rate (100% = SL, 200% = Double Declining).
6. Click Calculate Depreciation.

You’ll see a summary, an interactive chart, and a full year-by-year schedule — ideal for budgeting, tax prep, or GAAP compliance.