Depreciation Calculator

About the Depreciation Calculator

A depreciation calculator computes the annual depreciation expense, accumulated depreciation, and book value of any asset over its useful life using the four most common depreciation methods: straight-line (equal amounts each year), declining balance (accelerated, with higher early depreciation), double-declining balance (most accelerated), and sum-of-years-digits. Depreciation is the systematic allocation of an asset's cost over its useful life — it is not a cash expense (the cash was spent at purchase) but it is a real accounting expense that reduces taxable income, making depreciation method selection a significant tax planning tool for businesses. Our free depreciation calculator generates a complete year-by-year depreciation schedule for any asset cost, salvage value, and useful life, and compares the total depreciation expense timing across all four methods so you can choose the approach that best serves your tax and financial reporting objectives.

How It Works

Straight-line: Annual depreciation = (Cost - Salvage value) / Useful life. Example: $50,000 asset, $5,000 salvage value, 5-year life: Annual depreciation = ($50,000 - $5,000) / 5 = $9,000/year. Same every year. Declining balance: Annual depreciation = Book value x Depreciation rate. Rate = 1 / Useful life x acceleration factor. For double-declining balance (2x factor) on same asset: Year 1: $50,000 x 40% = $20,000. Year 2: $30,000 x 40% = $12,000. Year 3: $18,000 x 40% = $7,200. Year 4: switch to straight-line to fully depreciate: ($10,800 - $5,000) / 2 = $2,900. Year 5: $2,900. Note: depreciation cannot take the book value below salvage value. Sum-of-years-digits: fraction = (remaining life / sum of years digits). For 5-year: sum = 1+2+3+4+5 = 15. Year 1 fraction = 5/15 = 33.3%.

Tips & Best Practices

• ✓Section 179 expensing: US businesses can immediately deduct the full cost of qualifying equipment and software up to $1,160,000 in 2023 (limits adjusted annually). This eliminates multi-year depreciation for many small business asset purchases.
• ✓Bonus depreciation: businesses can take an additional 80% first-year bonus depreciation on qualifying property in 2023 (phasing down to 60% in 2024, 40% in 2025). This makes accelerated depreciation available beyond Section 179 limits.
• ✓MACRS (Modified Accelerated Cost Recovery System): the IRS requires most US businesses to use MACRS for tax purposes, which prescribes specific depreciation schedules and methods for different asset categories.
• ✓Book versus tax depreciation: companies often use straight-line for financial reporting (to show stable earnings) and accelerated methods for taxes (to defer tax liability). This creates deferred tax assets/liabilities on the balance sheet.
• ✓Half-year convention: under MACRS, most assets use the half-year convention — they are treated as placed in service mid-year regardless of actual purchase date, meaning you get only half a year's depreciation in the first and last years.
• ✓Residual/salvage value: the estimated value of the asset at end of useful life. Depreciation ends when book value reaches salvage value — important for all methods except MACRS which ignores salvage value.
• ✓Intangible assets use amortisation: software, patents, goodwill, and other intangibles are amortised (not depreciated) typically using straight-line over their legal or useful life. The calculator covers both depreciable tangible assets and amortisable intangibles.
• ✓Asset disposal: when an asset is sold before the end of its depreciation schedule, the difference between sale price and book value at disposal is a taxable gain or deductible loss. The depreciation schedule shows book value at any disposal date.

Who Uses This Calculator

Small business owners calculating annual depreciation expense for tax returns. Accountants preparing financial statements with GAAP-compliant depreciation schedules. Business owners evaluating Section 179 expensing versus multi-year depreciation for equipment purchases. Real estate investors depreciating rental properties (27.5 years residential, 39 years commercial under MACRS). Financial analysts modelling capital expenditure impacts on earnings. Students in accounting courses learning the four depreciation methods.