Which depreciation method should I use?

Straight-line is the most common and simplest method, suitable for most assets. Use declining balance for assets that lose value quickly early on (vehicles, technology). Sum-of-years-digits is another accelerated method accepted under GAAP. Consult your accountant for tax-specific requirements.

What is salvage value?

Salvage value (or residual value) is the estimated amount an asset will be worth at the end of its useful life. For example, a vehicle purchased for $30,000 might have a salvage value of $5,000 after 5 years.

How does depreciation affect taxes?

Depreciation is a non-cash expense that reduces taxable income. Higher depreciation in early years (accelerated methods) can provide larger tax deductions sooner, which is why many businesses prefer declining balance for tax purposes.

What is the difference between depreciation and amortization?

Depreciation applies to tangible assets (equipment, vehicles, buildings) while amortization applies to intangible assets (patents, copyrights, goodwill). Both spread the cost of an asset over its useful life.

Can land be depreciated?

No, land cannot be depreciated because it has an unlimited useful life and does not wear out. However, land improvements (parking lots, fencing, landscaping) can be depreciated.

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Depreciation calculator

Straight-line, double declining balance, or sum-of-years digits. Generates the full schedule and book-value run-out in one click.

Calculate depreciation

Asset cost ($)

Salvage value ($)

Useful life (years)

Method

Depreciation methods, explained

Straight-line

The simplest and most common method. Spreads the depreciable amount evenly across the asset's useful life.

Annual Depreciation = (Cost - Salvage Value) / Useful Life

Double declining balance

An accelerated method that depreciates more in early years. The rate is double the straight-line rate, applied to the remaining book value each year.

Annual Depreciation = Book Value x (2 / Useful Life)

The method switches to straight-line when the book value approaches salvage value, so the asset is never depreciated below its salvage value.

Sum-of-years digits

Another accelerated method. Each year's depreciation is based on a declining fraction of the depreciable amount.

Annual Depreciation = (Remaining Life / Sum of Years) x (Cost - Salvage)

For a 5-year asset, sum of years = 5+4+3+2+1 = 15. Year 1 uses 5/15, year 2 uses 4/15, and so on.

Questions

Frequently asked

Which depreciation method should I use?: Straight-line is the most common and simplest method, suitable for most assets. Use declining balance for assets that lose value quickly early on (vehicles, technology). Sum-of-years-digits is another accelerated method accepted under GAAP. Consult your accountant for tax-specific requirements.
What is salvage value?: Salvage value (or residual value) is the estimated amount an asset will be worth at the end of its useful life. For example, a vehicle purchased for $30,000 might have a salvage value of $5,000 after 5 years.
How does depreciation affect taxes?: Depreciation is a non-cash expense that reduces taxable income. Higher depreciation in early years (accelerated methods) can provide larger tax deductions sooner, which is why many businesses prefer declining balance for tax purposes.
What is the difference between depreciation and amortization?: Depreciation applies to tangible assets (equipment, vehicles, buildings) while amortization applies to intangible assets (patents, copyrights, goodwill). Both spread the cost of an asset over its useful life.
Can land be depreciated?: No, land cannot be depreciated because it has an unlimited useful life and does not wear out. However, land improvements (parking lots, fencing, landscaping) can be depreciated.

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