Depreciation calculator

The examples below use a $25,000 asset with a $2,500 salvage value and a five-year useful life, placed in service at the start of the year. Salvage value is what you expect the asset to be worth when you stop using it; how to estimate salvage value covers setting it.

Straight-line

The same amount every year. It is the most common method for a business’s own books.

Annual depreciation = (cost − salvage value) ÷ useful life

($25,000 − $2,500) ÷ 5 = $4,500 a year, taking the book value from $25,000 down to $2,500 after five years. If the asset goes into service in October of a calendar fiscal year, the first year gets three months, $1,125, and the remaining $3,375 of that share falls into a sixth year.

Double-declining balance

Twice the straight-line rate, applied to the book value left at the start of each year. It puts the most depreciation in the first years.

Depreciation = opening book value × (2 ÷ useful life)

The rate is 2 ÷ 5 = 40%. Year one is $25,000 × 40% = $10,000, year two $15,000 × 40% = $6,000, then $3,600 and $2,160. Salvage value is not subtracted first, but the book value is never taken below it, so year five is only $740. When straight-line over the remaining life would give more, the calculator switches to it; you can turn that off.

150% declining balance

The same approach at one and a half times the straight-line rate, for a gentler front-loading.

Depreciation = opening book value × (1.5 ÷ useful life)

At 30%, year one is $7,500 and year two $5,250. In year four straight-line over the remaining two years gives more, so the last two years are $3,037.50 each.

Sum-of-years’ digits

Front-loaded like declining balance, but it lands exactly on salvage value.

Depreciation = (cost − salvage value) × remaining life ÷ sum of the years’ digits

For five years the digits add up to 1 + 2 + 3 + 4 + 5 = 15. Year one is $22,500 × 5⁄15 = $7,500, then $6,000, $4,500, $3,000 and $1,500.

The Modified Accelerated Cost Recovery System is how most tangible business property placed in service after 1986 is depreciated on a US federal tax return. Instead of a useful life you choose, the IRS assigns each kind of property a recovery period and publishes the percentage to deduct each year.

This calculator uses the General Depreciation System tables from Appendix A of IRS Publication 946. A $25,000 computer system, 5-year property under the half-year convention, is depreciated at 20%, 32%, 19.2%, 11.52%, 11.52% and 5.76%: $5,000 in the first year and six tax years in all. Salvage value is ignored.

Which convention applies

• Half-year is the usual convention for equipment, vehicles and furniture. It treats everything as placed in service in the middle of the year, so the first and last years each get half a year.
• Mid-quarter replaces it when more than 40% of the depreciable basis of all property you placed in service during the year went into service in the last three months of the tax year.
• Mid-month always applies to residential rental property (27.5 years) and nonresidential real property (39 years).

What the MACRS calculator leaves out

Section 179 expensing and the special (bonus) depreciation allowance are claimed first and reduce the basis MACRS applies to, so enter the basis that is left after them. The calculator assumes a calendar tax year and does not handle the Alternative Depreciation System, short tax years, listed-property limits or disposals. Check your figures with a tax professional or IRS Topic 704 before filing.

Many businesses keep two schedules for the same asset: straight-line in their own books, so the accounts reflect how the asset is actually used, and MACRS on the tax return. The difference between the two is normal and is tracked by your accountant. Our guide to building a fixed asset depreciation schedule has a free Excel template for the book side, and accumulated depreciation explains how the running total reaches the balance sheet.