What is straight line depreciation?

Straight-line depreciation allocates an equal amount of depreciation expense each year over the asset's useful life. The formula is: Annual Depreciation = (Cost - Salvage Value) / Useful Life. It is the most commonly used method because of its simplicity and is appropriate for assets that provide relatively consistent value throughout their life, such as office furniture or buildings.

How to calculate depreciation expense?

Depreciation expense is the portion of an asset's cost allocated to a specific accounting period. Choose a depreciation method, then apply its formula. For straight-line: Expense = (Cost - Salvage) / Life. For DDB: Expense = (2 / Life) × Book Value. The depreciation expense appears on the income statement and reduces reported profit, which in turn reduces tax liability.

What is salvage value in depreciation?

Salvage value (also called residual value or scrap value) is the estimated amount an asset will be worth at the end of its useful life. It represents the expected sale or disposal value after the asset is fully depreciated. For example, a delivery truck purchased for $35,000 might have a salvage value of $5,000 after 5 years. The depreciable amount is the difference: $35,000 - $5,000 = $30,000.

How to calculate accumulated depreciation?

Accumulated depreciation is the running total of all depreciation expense recorded for an asset since it was placed in service. Simply add up each year's depreciation expense. For a straight-line asset with $9,000 annual depreciation: after Year 1 = $9,000, after Year 2 = $18,000, after Year 3 = $27,000, and so on. Accumulated depreciation is shown on the balance sheet as a contra-asset account.

Depreciation Calculator

Depreciation Method

Asset Cost

50K

Salvage Value

5.0K

Useful Life

years

Quick Presets

Annual Depreciation (Year 1)

$9,000.00

9.0K per yearStraight-Line (SL)

Depreciation Rate

18%

of asset cost per year

Total Depreciation

$45,000

over 5 years

Final Book Value

$5,000

after year 5

Depreciation Schedule

Year-by-year breakdown of asset depreciation

Year	Beginning Value	Depreciation	Accumulated	Ending Value
1	$50,000	$9,000	$9,000	$41,000
2	$41,000	$9,000	$18,000	$32,000
3	$32,000	$9,000	$27,000	$23,000
4	$23,000	$9,000	$36,000	$14,000
5	$14,000	$9,000	$45,000	$5,000
Total	—	$45,000	—	—

How to Use This Depreciation Calculator

Five steps to calculate depreciation expense for any asset

1
Choose a depreciation method. Select Straight-Line for consistent annual expense, Double Declining Balance or SYD for accelerated (front-loaded) depreciation, or Declining Balance for custom rate acceleration.
2
Enter the asset cost. This is the purchase price or total capitalized cost including installation and setup fees. Use the currency selector to switch between USD, INR, EUR, and more.
3
Set the salvage value. Estimate what the asset will be worth at the end of its useful life. Set to $0 if you expect no residual value.
4
Enter the useful life in years. How many years the asset will be productive. Use decimals for partial years — for example, enter 27.5 for residential rental property (IRS standard).
5
Review the depreciation schedule and chart. The year-by-year table shows beginning book value, annual depreciation expense, accumulated depreciation, and ending book value for every year. Use the chart to compare how book value declines under all four methods.

Depreciation by Asset Type

Which depreciation method to use for different types of assets

Different assets lose value at different rates. Choosing the right depreciation method and useful life ensures your financial statements accurately reflect each asset's decline in value — and helps maximize your tax deductions.

Vehicles (Cars, Trucks, Delivery Vans)

DDB or SYD (accelerated)

Vehicles lose value fastest in the first few years due to wear and tear and market depreciation. Accelerated methods like Double Declining Balance or Sum-of-the-Years'-Digits front-load the deductions. Note: this calculator computes accounting/book depreciation for financial reporting and tax purposes — it does not predict Kelley Blue Book or market resale value. Market values depend on make, model, mileage, condition, and local demand.

Equipment & Machinery

DDB or Declining Balance

Manufacturing equipment and heavy machinery often lose value quickly in early years when they are new and most productive. A 150% or 200% declining balance rate matches this pattern well.

Rental Property (Residential)

Straight-Line over 27.5 years

In the U.S., residential rental property is depreciated using straight-line over 27.5 years. Only the building value (not land) is depreciable. Example: a rental home purchased for $300,000 with land valued at $60,000 has a depreciable base of $240,000. Annual depreciation = $240,000 ÷ 27.5 ≈ $8,727. This deduction reduces taxable rental income each year.

Buildings (Commercial Property)

Straight-Line over 39 years

Commercial real estate is typically depreciated straight-line over 39 years under the Modified Accelerated Cost Recovery System (MACRS). Straight-line is the default because buildings provide consistent utility over their lifespan.

Technology & IT Equipment

SYD or DDB (short life)

Computers, servers, and IT hardware become obsolete quickly. A useful life of 3–5 years is typical, and accelerated depreciation (SYD or DDB) reflects the rapid decline in productive value. Some businesses use a half-year convention for partial-year adjustments when equipment is placed in service mid-year.

What is Depreciation?

Understanding how assets lose value over time

Depreciation is an accounting method that allocates the cost of a tangible asset over its useful life. It reflects the wear and tear, obsolescence, or reduction in value that an asset experiences as it ages and is used in business operations. Businesses use depreciation to spread the cost of expensive assets — such as machinery, vehicles, equipment, and buildings — across multiple accounting periods rather than recording the entire expense in the year of purchase.

Expense MatchingSpreads asset cost across the years the asset actually generates revenue, giving a truer picture of profitability.

Tax DeductionsDepreciation expense is tax-deductible in most jurisdictions, reducing taxable income and lowering your tax burden.

Method Choice MattersAccelerated methods front-load deductions; straight-line provides steady, predictable expense. Your choice affects the timing of tax savings.

Depreciation Methods & Formulas

The four most common methods for calculating depreciation

Each method allocates the depreciable base (cost minus salvage) differently across the asset's useful life. Straight-line spreads it evenly; accelerated methods like DDB and SYD front-load larger deductions in early years when the asset is newest and most productive.

Straight-Line (SL)

Annual Depreciation = (Asset Cost − Salvage Value) / Useful Life

The simplest and most widely used method. Equal expense each year.

Double Declining Balance (DDB)

Depreciation = (2 / Useful Life) × Beginning Book Value

Front-loads depreciation. Switches to straight-line when beneficial.

Sum-of-the-Years'-Digits (SYD)

Depreciation = (Remaining Life / Sum of Years) × (Cost − Salvage)

Highest in year 1, decreasing steadily. For 5-year asset, Sum = 15.

Declining Balance (DB)

Depreciation = (Rate% / Useful Life) × Beginning Book Value

Flexible accelerated method. Common rates: 150% or 200%. Choose your factor.

Understanding the Depreciation Schedule

What each column in the depreciation table means

Beginning Book Value

The asset's value at the start of each year. For year 1, this equals the original cost. For subsequent years, it equals the previous year's ending book value.

Depreciation Expense

The amount of value the asset loses during that year. This is the expense recorded on your income statement and used for tax deductions.

Accumulated Depreciation

The running total of all depreciation taken to date. This appears on the balance sheet as a contra-asset, reducing the asset's reported value.

Ending Book Value

The asset's value at the end of each year (Beginning Value minus Depreciation). For straight-line and SYD methods, the final year's ending value equals the salvage value. For declining balance methods, it may remain above salvage.

Common Depreciation Mistakes

Pitfalls to avoid when calculating asset depreciation

Setting salvage value to zero unnecessarily

Most assets have some residual value at the end of their useful life. Setting salvage value to zero overstates depreciation expense and can lead to inaccurate financial reporting.

Using the wrong useful life

The useful life should reflect how long the asset will actually be productive for your business, not just its physical lifespan. Tax authorities often publish standard useful life tables.

Not matching the method to the asset type

Accelerated methods (DDB, SYD) are better for assets that lose value quickly early on, like vehicles and technology. Straight-line works well for assets with consistent utility, like buildings.

Confusing depreciation with amortization

Depreciation applies to tangible assets (equipment, vehicles, buildings). Amortization applies to intangible assets (patents, copyrights, goodwill). The concepts are similar but apply to different asset types.

Forgetting partial-year adjustments

If an asset is purchased mid-year, the first year's depreciation should be prorated. Many businesses use a half-year convention, depreciating half a year's worth in the first and last years.

Real-World Example

Calculating depreciation for a delivery truck

A company purchases a delivery truck for $35,000 with an expected salvage value of $5,000 after 5 years. Using straight-line depreciation:

Given

Purchase price: $35,000
Salvage value: $5,000
Useful life: 5 years
Method: Straight-Line

Result

Depreciable amount: $30,000
Annual depreciation: $6,000
Depreciation rate: 17.14%
Book value after 3 years: $17,000

How it works: Each year, the company records a $6,000 depreciation expense on its income statement and increases accumulated depreciation on the balance sheet by the same amount. After 3 years, accumulated depreciation reaches $18,000 and the truck's book value falls to $17,000. By the end of year 5, the truck is fully depreciated to its $5,000 salvage value.

Frequently Asked Questions

Common questions about depreciation calculation and methods

Depreciation is calculated by subtracting the salvage value from the asset cost to get the depreciable amount, then applying a method to allocate that amount over the asset's useful life. The simplest approach is straight-line: divide the depreciable amount by the number of years. For example, an asset costing $50,000 with $5,000 salvage value and a 5-year life has annual depreciation of ($50,000 - $5,000) / 5 = $9,000 per year.

Double declining balance (DDB) applies twice the straight-line rate to the asset's declining book value each year. The rate is 2 / Useful Life. For a $50,000 asset with a 5-year life, the DDB rate is 40%. Year 1 depreciation = 40% × $50,000 = $20,000. Year 2 = 40% × $30,000 = $12,000, and so on. The method switches to straight-line in later years when that produces a larger deduction, and the asset is never depreciated below its salvage value.

Sum-of-the-years'-digits (SYD) is an accelerated depreciation method. First, add up all the years of useful life (for 5 years: 1+2+3+4+5 = 15). Then each year's depreciation fraction is the remaining life divided by that sum. Year 1 = 5/15, Year 2 = 4/15, Year 3 = 3/15, etc. Multiply each fraction by the depreciable amount (Cost - Salvage) to get the annual expense. This results in higher depreciation in early years.

Straight-line gives equal annual expense — best for stable-value assets. Double declining balance and sum-of-years'-digits are accelerated methods that front-load larger deductions in early years — ideal for assets that lose value quickly (vehicles, tech equipment). Declining balance lets you customize the acceleration rate. For SL and SYD, total depreciation always equals the full depreciable amount (cost minus salvage). DDB also reaches salvage because it switches to straight-line when beneficial. Plain declining balance may end above salvage value, resulting in lower total depreciation.

Residential rental property in the US is typically depreciated using straight-line over 27.5 years. Commercial property uses 39 years. Only the building portion is depreciable — land is not. For example, if you buy a rental property for $300,000 and the land is valued at $60,000, the depreciable base is $240,000. Annual depreciation = $240,000 / 27.5 ≈ $8,727. This deduction reduces your taxable rental income.

The depreciation rate depends on the method. For straight-line: Rate = 1 / Useful Life (or 100% / Useful Life). For a 5-year asset, the rate is 20% per year. For double declining balance: Rate = 2 / Useful Life = 40% for a 5-year asset. For declining balance with a custom factor: Rate = (Factor% / 100) / Useful Life. The rate tells you what proportion of the asset's value (or depreciable base) is expensed each period.

For accounting/book purposes, vehicle depreciation uses the same methods as any other asset: straight-line, DDB, SYD, or declining balance. The IRS typically allows a 5-year recovery period for cars and light trucks under MACRS, often using the 200% declining balance method switching to straight-line. This is not the same as market depreciation — this calculator computes the accounting expense you can deduct from taxable income, not the Kelley Blue Book or resale value of your car. Market value depreciation depends on make, model, mileage, condition, and local demand, which this calculator does not estimate.

Book value (also called carrying value or net book value) is the original cost of an asset minus its accumulated depreciation. It represents the asset's reported value on the balance sheet, not its current market value. For example, a truck purchased for $35,000 with $21,000 in accumulated depreciation after 3 years has a book value of $14,000 — even though its actual market resale value might be higher or lower depending on condition and demand.

The best depreciation method depends on your goal and asset type. Use straight-line for assets with consistent value over time, like buildings and office furniture — it is the simplest and most common method. Choose DDB or SYD if you want larger deductions in early years, which reduces taxable income sooner — ideal for vehicles, technology, and equipment that lose value quickly. Use declining balance with a custom rate when you need precise control over the acceleration. For tax purposes, check which methods are allowed by your local tax authority (the IRS prescribes specific methods for different asset classes under MACRS).

Commercial rental property in the US is depreciated using straight-line over 39 years. Only the building structure is depreciable, not the land. For example, if you purchase a commercial building for $1,000,000 and the land is appraised at $200,000, your depreciable basis is $800,000. Annual depreciation = $800,000 ÷ 39 ≈ $20,513. The land value must be excluded because land does not wear out or become obsolete — it has an indefinite useful life.

Depreciation expense is the amount of depreciation recorded in a single accounting period (usually one year) on the income statement — it reduces your net income for that period. Accumulated depreciation is the running total of all depreciation expense taken since the asset was placed in service, shown on the balance sheet as a contra-asset account. For example, a straight-line asset with $9,000 annual depreciation has a year 3 depreciation expense of $9,000 and accumulated depreciation of $27,000. Depreciation expense resets each period; accumulated depreciation grows over time.

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Last updated Jun 15, 2026