How to use the depreciation calculator
- Enter the cost of the asset, its expected salvage value and its useful life in years.
- Choose a method: straight line, declining balance or sum of the years digits.
- For declining balance, set the factor: 2 for double declining, 1.5 for 150 percent declining.
- Read the first year's expense, the total, the book value at the end and the year by year table.
Formula
Straight line = (cost - salvage) / life
Sum of the years digits: year k = (cost - salvage) x (life - k + 1) / (life x (life + 1) / 2)
Declining balance: year k = opening book value x factor / life, never below salvage
Book value = cost - accumulated depreciation
This is book depreciation in whole years. The tool never takes the book value below the salvage value.
Worked example
A machine costs $50,000, has a salvage value of $5,000 and a life of 5 years. Straight line gives $9,000 a year and an ending book value of $5,000.
Sum of the years digits (digits add to 15) gives $15,000, $12,000, $9,000, $6,000 and $3,000. Double declining balance gives $20,000, $12,000, $7,200, $4,320 and $1,480, where the last year is limited so the book value stops at salvage.
Choosing a method
Straight line spreads the cost evenly and is the simplest. Declining balance and sum of the years digits take more expense early, which fits assets that lose value or usefulness faster when new, such as vehicles and computers. The method you use in your books should reflect how the asset is used, and it should be applied consistently.
Book depreciation versus tax depreciation
This tool produces an accounting schedule. Tax depreciation follows its own rules, such as the IRS MACRS tables, with set recovery periods, conventions for the first year, and options such as Section 179 or bonus depreciation. Those are not modeled here, and a tax professional can tell you which apply. Salvage value and life are your estimates, and they are inputs and not fixed rules.
Related tools
See how a vehicle loses value in the car depreciation calculator, plan costs in the startup cost calculator and check margins with the profit margin calculator.
Assumptions and limits
- The useful life and salvage value are your own estimates.
- Depreciation starts at the beginning of year 1 and is taken for whole years. Partial years are not modeled.
- Declining balance does not switch to straight line, so the final book value can be above salvage in some cases and the tool stops at salvage when it would pass it.
- Tax methods, such as MACRS, Section 179 and bonus depreciation, are not modeled.
Frequently asked questions
How do you calculate straight line depreciation?
Subtract the salvage value from the cost and divide by the useful life in years.
What is double declining balance?
A method that takes a fixed percent, twice the straight line rate, of the book value at the start of each year, so expense is highest at the start.
What is salvage value?
The amount you expect the asset to be worth at the end of its useful life. It can be zero.
Is this the depreciation I use on my tax return?
Not necessarily. Tax depreciation follows separate rules, so check with a tax professional.