Depreciation Calculator
Spread the cost of a tangible asset across the years you actually use it. Pick a method, get the full schedule with book value at every step, and see how an accelerated method changes the timing against plain straight line.
Common lives: 5 years for cars and computers, 7 for office furniture, 15 for land improvements, 27.5 for residential rental property, 39 for commercial real estate.
Your schedule will appear here
Enter the asset cost, salvage value and useful life, pick a method, then calculate. Salvage value cannot exceed the cost.
Depreciation vs. amortization
These two get mixed up constantly, so here is the line between them. In accounting, amortization has a second meaning: spreading the cost of an expensive, long-lived item over several periods, usually something intangible such as a patent. Depreciation covers tangible property instead: cars, buildings, machinery. Our Amortization Calculator deals with loan schedules, not this accounting sense of the word, so it will not help with an asset.
Quick Answer
Straight-line depreciation is D = (asset cost - salvage value) / useful life. Double declining balance is DDB = 2 x (1/n) x book value, and salvage value stays out of that annual calculation, acting only as the floor where depreciation stops. A $30,000 asset with a $3,000 salvage value over five years deducts $12,000 in year one under DDB against $5,400 a year under straight line.
How It Works: Formula & Variables
Straight line
D = (C − Sn) / n
- C
- The asset cost.
- Sn
- The salvage value at the end of the asset's life.
- n
- The useful life in years.
The depreciable basis is DB = C − Sn. That quantity is always cost minus salvage value, whichever method you go on to use.
Declining balance and double declining balance
Depreciation per year = Book value × Depreciation rate
DDB = 2 × (1/n) × book value
One rule matters more than any other here, and it catches people out: salvage values are not included in the calculation for annual depreciation. Depreciation stops once book values drop to salvage values. The salvage figure is a floor, not an input to the yearly sum.
Sum of the years' digits
Depreciation for the Year = (Asset Cost − Salvage Value) × factor
The factor in year 1 is n/(1+2+...+n), stepping down to 1/(1+2+...+n) in the final year. On a five-year asset the digits add up to 15, so the factors run 5/15, 4/15, 3/15, 2/15, 1/15.
What depreciation is, in tax terms
The IRS defines it as “an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. It is an allowance for the wear and tear, deterioration, or obsolescence of the property.” One hard exclusion: land itself is never depreciated.
Common useful lives
| Property type | Useful life |
|---|---|
| Cars, light trucks, computers | 5 years |
| Office furniture, farm machinery | 7 years |
| Land improvements | 15 years |
| Residential rental property | 27.5 years |
| Nonresidential / commercial real estate | 39 years |
The 27.5-year and 39-year figures are confirmed in IRS Publication 946.
Worked Examples
Example 1: a truck on straight line
A truck costs $45,000 and is expected to be worth $5,000 after eight years. The depreciable basis is 45,000 − 5,000 = $40,000, so D = 40,000 / 8 = $5,000 per year.
Book value after five years is 45,000 − (5 × 5,000) = $20,000. Every year looks the same, which is exactly why this method stays the most popular one.
Example 2: double declining balance against straight line
A $30,000 asset with a $3,000 salvage value over five years. The DDB rate is 2 × (1/5) = 40%. Straight line on the same asset would be (30,000 − 3,000) / 5 = $5,400 a year.
| Year | DDB | Book value | Straight line |
|---|---|---|---|
| 1 | $12,000.00 | $18,000.00 | $5,400.00 |
| 2 | $7,200.00 | $10,800.00 | $5,400.00 |
| 3 | $4,320.00 | $6,480.00 | $5,400.00 |
| 4 | $2,592.00 | $3,888.00 | $5,400.00 |
| 5 | $888.00 | $3,000.00 | $5,400.00 |
Year five is the one to look at. A straight 40% of $3,888 would be $1,555.20, but that would push the book value below the $3,000 salvage floor. The deduction is capped at $888 instead, landing the book value exactly on the salvage value.
Key Concepts
Timing, not total: every method writes off the same amount across the asset's life. What changes is which years get the deduction.
The salvage floor: book value never drops below salvage value. On declining balance methods the final year is usually a partial deduction that closes the gap exactly.
Match the method to the asset: a laptop loses most of its value in the first two years, so an accelerated method reflects reality. A warehouse does not, so straight line fits better.
Land is the exception: buildings depreciate, the ground under them does not. Any purchase covering both needs the price split before you start.
Common Mistakes
Subtracting salvage value in a DDB calculation: the rate applies to the full book value. Salvage only stops the schedule, it does not shrink the yearly figure.
Depreciating past the salvage value: once book value reaches salvage, the schedule ends. Carrying on writes off value that was never depreciable.
Depreciating land alongside a building: split the values first. Rolling them together overstates the deduction and is the sort of thing that gets noticed.
Confusing amortization with depreciation: tangible assets depreciate, intangible ones amortize. See the callout above the calculator.
Frequently Asked Questions
Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. It is an allowance for the wear and tear, deterioration, or obsolescence of the property.
D = (asset cost - salvage value) / useful life. A $45,000 truck with a $5,000 salvage value over eight years gives a depreciable basis of $40,000 and a deduction of $5,000 a year.
The most commonly used declining balance variant, applying a rate that is twice the straight-line first-year rate. On a five-year asset the straight-line rate is 20%, so double declining balance uses 40% against the book value each year.
Not in the annual calculation. Salvage values are not included in the calculation for annual depreciation. Depreciation stops once book values drop to salvage values, so the salvage figure acts as a floor rather than as part of the yearly maths.
Straight line is the simplest and the most widely used. Declining balance suits assets that lose most of their value early, such as vehicles and computers, because it front-loads the deduction.
No. Land itself is never depreciated. If you bought land with a building on it, split the purchase price between the two and depreciate only the building.
Related Calculators
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Sales tax on a purchase, or the pre-tax price from a tax-inclusive total.
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What a dollar amount is worth across two years, using live CPI-U data.
Sources
- IRS Publication 946, How to Depreciate Property (the tax definition, plus the 27.5-year and 39-year lives): https://www.irs.gov/publications/p946
- AJ Designer, depreciation equations (straight-line formula, depreciable basis, DDB, useful-life table, and the rule that land is never depreciated): https://www.ajdesigner.com/depreciation/
- calculator.net, Depreciation Calculator (declining balance, the salvage-value rule, and sum of the years' digits): https://www.calculator.net/depreciation-calculator.html