Depreciation Calculator

What is Depreciation?

Depreciation is the systematic allocation of an asset's cost over its useful life. This depreciation calculator helps businesses account for the declining value of tangible assets like equipment, vehicles, and buildings. Rather than expensing the full cost immediately, depreciation spreads the expense across the years the asset generates revenue, matching costs with benefits according to accounting principles.

Depreciation Methods

Straight-Line: The simplest method, dividing the depreciable amount equally across all years. Use this depreciation calculator's straight-line method for assets that provide consistent value over time, like office furniture and buildings.

Declining Balance: An accelerated method applying a fixed percentage to the declining book value each year. Results in higher depreciation early in the asset's life, beneficial for tax purposes and assets that lose value quickly like computers and vehicles.

Double Declining Balance: Uses double the straight-line rate, providing even more aggressive early depreciation. Often used for technology assets that become obsolete quickly.

Sum of Years Digits: Another accelerated method that weights depreciation based on the remaining useful life. The fraction decreases each year, resulting in declining depreciation expenses.

Salvage Value

Salvage value (or residual value) is the estimated amount an asset will be worth at the end of its useful life. This depreciation calculator subtracts salvage value from the asset cost to determine the depreciable amount. Setting an accurate salvage value is important for financial reporting and tax compliance. Assets with high resale value, like vehicles, typically have higher salvage values, while assets with little remaining value, like specialized equipment, may have salvage values near zero.

Tax Implications

Depreciation reduces taxable income, providing significant tax benefits. The IRS specifies depreciation methods and useful lives for different asset classes through the Modified Accelerated Cost Recovery System (MACRS). While this depreciation calculator shows general depreciation patterns, always consult tax guidelines and a qualified accountant for actual tax depreciation, as tax rules may differ from financial reporting standards (GAAP). Section 179 and bonus depreciation may allow even faster write-offs for qualifying assets.