Depreciation Calculator
Calculate straight-line depreciation for any asset. Get the annual depreciation expense, accumulated depreciation, and a full year-by-year depreciation schedule.
Straight-Line Depreciation Calculator
Calculate the annual depreciation expense for your business assets using the straight-line method.
Formula: Annual Depreciation = (Asset Cost - Salvage Value) ÷ Useful Life
This calculator uses the straight-line depreciation method for simplicity and consistency.
Depreciation Methods Compared
Different methods suit different assets and business needs. Here's how the main methods compare.
Straight-Line
Assets that lose value evenly over time
(Cost - Salvage) / LifeDouble Declining Balance
Assets that lose value quickly in early years
2 x (1/Life) x Book ValueMACRS
US tax returns (required)
IRS-defined percentages per yearUnits of Production
Assets where usage varies year to year
(Cost - Salvage) / Total Units x Units UsedAsset Useful Life Guide
Use these IRS guidelines and industry standards to determine the useful life of your assets.
| Asset Type | IRS Life (MACRS) | Typical Life | Notes |
|---|---|---|---|
| Computers & Software | 5 years | 3-5 years | Technology often becomes obsolete faster |
| Office Furniture | 7 years | 7-10 years | Durable assets with longer functional life |
| Vehicles | 5 years | 5-7 years | Mileage-dependent; consider units-of-production |
| Manufacturing Equipment | 7 years | 7-15 years | Varies widely by equipment type and usage |
| Commercial Buildings | 39 years | 30-50 years | Land is never depreciated |
| Residential Rental Property | 27.5 years | 27.5 years | IRS mandates this period for rental property |
Source: IRS Publication 946, MACRS depreciation guidelines
How Depreciation Saves on Taxes
The Depreciation Tax Shield
Depreciation reduces your taxable income without requiring a cash outlay in the current period. This "tax shield" effect means the true cost of an asset is lower than the sticker price.
Tax Savings = Depreciation Expense x Tax RateExample: $50,000 Equipment
Frequently Asked Questions
What is straight-line depreciation?
Straight-line depreciation is the simplest and most common method of calculating depreciation. It spreads the cost of an asset evenly over its useful life. The formula is: Annual Depreciation = (Asset Cost - Salvage Value) / Useful Life. For example, a $50,000 machine with a $5,000 salvage value and 10-year useful life has an annual depreciation of $4,500.
What is the difference between depreciation and amortization?
Depreciation applies to tangible physical assets like equipment, vehicles, and buildings. Amortization applies to intangible assets like patents, copyrights, and software licenses. Both spread the cost of an asset over its useful life, but they apply to different asset categories. The calculation methods are similar — straight-line is common for both.
What is salvage value?
Salvage value (also called residual value or scrap value) is the estimated value of an asset at the end of its useful life. It's what you expect to sell or trade in the asset for when it's fully depreciated. For example, a company vehicle purchased for $40,000 might have a salvage value of $8,000 after 5 years. If you expect zero residual value, enter $0 as the salvage value.
What is useful life for depreciation?
Useful life is the estimated period over which an asset is expected to be productive for the business. The IRS provides guidelines through MACRS (Modified Accelerated Cost Recovery System): computers and software (5 years), office furniture (7 years), residential rental property (27.5 years), commercial buildings (39 years). Companies can also set their own useful life estimates based on expected usage.
How does depreciation affect taxes?
Depreciation is a tax-deductible expense that reduces taxable income without requiring a cash outlay. If your business has a $10,000 annual depreciation expense and a 25% tax rate, depreciation saves you $2,500 in taxes annually. This is why depreciation is considered a "tax shield." Accelerated depreciation methods (like MACRS) front-load deductions, providing larger tax benefits in early years.
What are the different depreciation methods?
The main depreciation methods are: (1) Straight-Line — equal expense each year, simplest method. (2) Double Declining Balance — accelerated, higher expense in early years. (3) Sum-of-Years Digits — accelerated, based on remaining useful life. (4) Units of Production — based on actual usage rather than time. (5) MACRS — required for US tax returns, combines declining balance and straight-line. This calculator uses straight-line for its simplicity and wide applicability.
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