Depreciation Calculator — Free Online Tool

How to Use This Depreciation Calculator

This calculator computes depreciation using three widely recognized methods: straight-line (SL), double declining balance (DDB), and sum-of-years-digits (SYD). Each method allocates the same total depreciation over the asset life but distributes it differently across years.

1. Enter the asset cost. This is the total acquisition cost including the purchase price, shipping, installation, and any other costs necessary to put the asset into service. For example, a $45,000 machine with $3,000 installation and $2,000 shipping has a total cost of $50,000. Do not include financing costs (interest) in the asset cost.
2. Enter the salvage value. Estimate what the asset will be worth at the end of its useful life. This is the expected resale, trade-in, or scrap value. If the asset will be worthless at the end (disposed of, not resold), enter $0. For vehicles, check used vehicle valuation guides. For equipment, research the resale market for similar items at that age.
3. Set the useful life. Enter the number of years you expect to use the asset productively. This may be based on manufacturer specifications, industry standards, or IRS guidelines. The IRS MACRS system provides standard lives: 5 years for computers and vehicles, 7 years for office furniture, 27.5 years for residential rental property, and 39 years for commercial buildings.
4. Select the depreciation method. Straight-line provides equal deductions each year and is the simplest to understand and calculate. Double declining balance provides larger deductions in early years, which is ideal for assets that lose value quickly. Sum-of-years-digits also front-loads depreciation but less aggressively than DDB. Try all three to compare their impact.
5. Review the depreciation schedule. The table shows each year's depreciation expense, the accumulated depreciation to date, and the remaining book value. The chart visualizes the declining book value and growing accumulated depreciation. Use these numbers for financial planning, tax projections, and asset management decisions.

Keep in mind that this calculator models book depreciation. For tax purposes, the IRS requires the Modified Accelerated Cost Recovery System (MACRS), which has specific asset classes and depreciation rates. Consult a tax professional for tax-specific depreciation calculations.

Depreciation Formulas and Methods

Each depreciation method uses a different formula to calculate the annual depreciation expense. All three methods begin with the depreciable base, which is the asset cost minus its salvage value. The total depreciation over the asset life is always the same; only the timing differs.

Straight-Line Depreciation Explained

Straight-line depreciation is the most straightforward method. It assumes the asset provides equal utility each year and therefore should be expensed equally. The formula divides the depreciable base evenly across all years. For a $50,000 asset with $5,000 salvage and 5-year life, the annual depreciation is ($50,000 - $5,000) / 5 = $9,000 per year. The depreciation rate is 1/5 = 20% per year. This method is preferred for assets with consistent usage patterns, such as buildings, furniture, and some types of equipment.

Double Declining Balance Explained

DDB applies double the straight-line rate to the declining book value (not the depreciable base). For a 5-year asset, the DDB rate is 2 x 20% = 40%. Year 1: $50,000 x 40% = $20,000, leaving $30,000 book value. Year 2: $30,000 x 40% = $12,000, leaving $18,000. Year 3: $18,000 x 40% = $7,200, leaving $10,800. In later years, if the calculated depreciation would reduce the book value below salvage, the depreciation is limited to maintain the salvage value floor. DDB provides the most aggressive early depreciation, which maximizes early tax deductions and is useful for assets that rapidly become obsolete.

Sum-of-Years-Digits Step-by-Step Example

For a $50,000 asset with $5,000 salvage and 5-year life, the SYD sum = 5+4+3+2+1 = 15. Each year's fraction uses the remaining years as the numerator:

1. Year 1: 5/15 x $45,000 = $15,000 (33.3% of depreciable base)
2. Year 2: 4/15 x $45,000 = $12,000 (26.7%)
3. Year 3: 3/15 x $45,000 = $9,000 (20.0%)
4. Year 4: 2/15 x $45,000 = $6,000 (13.3%)
5. Year 5: 1/15 x $45,000 = $3,000 (6.7%)
6. Total: $45,000 = depreciable base (100%)

SYD provides a declining depreciation pattern similar to DDB but is more predictable and always reaches zero at the end of the useful life without needing adjustments.

Practical Depreciation Examples

These real-world scenarios show how different businesses use depreciation calculations for financial planning and tax optimization. Each example demonstrates the impact of method choice on annual deductions.

Construction Company: Heavy Equipment

Marco's construction firm purchases a $180,000 excavator with a $20,000 salvage value and 7-year useful life. Using straight-line: ($180,000 - $20,000) / 7 = $22,857 per year. Using DDB at 28.57% (2/7): Year 1 = $51,429, Year 2 = $36,735, declining each year. For Marco, the DDB method provides $51,429 in first-year depreciation versus $22,857 with straight-line, a difference of $28,572 in deductible expense. At a 32% combined tax rate, this saves approximately $9,143 in taxes in Year 1. Marco chooses DDB because excavators lose functionality and value rapidly in heavy use.

Tech Startup: Computer Equipment

Priya's startup purchased $75,000 in server equipment with zero salvage value and a 5-year useful life. She considers SYD for aggressive but smooth depreciation. SYD sum = 15. Year 1 = $75,000 x 5/15 = $25,000. Year 2 = $20,000. Year 3 = $15,000. Year 4 = $10,000. Year 5 = $5,000. For her startup in the growth phase with lower revenue now, Priya actually prefers straight-line at $15,000 per year because she expects higher taxable income in years 3-5 when the straight-line deductions will offset more income in potentially higher tax brackets.

Restaurant Owner: Kitchen Equipment

Carlos opens a restaurant and invests $120,000 in commercial kitchen equipment with $10,000 estimated salvage after 10 years. Using straight-line: $11,000 per year. Using DDB at 20%: Year 1 = $24,000, Year 2 = $19,200, Year 3 = $15,360. The DDB deductions in the first three years total $58,560 compared to $33,000 with straight-line, providing an extra $25,560 in early deductions. Since restaurants have tight cash flow in their first years, Carlos chooses DDB to maximize tax savings during the critical startup period when every dollar of cash flow matters.

Asset Depreciation Tips and Complete Guide

Effective depreciation management helps businesses optimize tax deductions, make better capital investment decisions, and maintain accurate financial statements. These tips apply to businesses of all sizes.

Maintain Accurate Asset Records

Create a comprehensive asset register that tracks every depreciable asset: description, date placed in service, original cost, salvage value estimate, useful life, depreciation method, and current book value. Update this register whenever you acquire, dispose of, or impair an asset. Good records are essential for tax compliance, insurance claims, and business valuation. Many accounting software packages include asset management modules that automate depreciation calculations and generate schedules automatically.

Consider Tax-Year Timing for Purchases

When purchasing assets near year-end, consider the tax implications of timing. An asset placed in service in December gets a full year of depreciation in the first year under many methods. Delaying to January pushes the first depreciation to the next tax year. If your income is higher this year, accelerating the purchase to take the deduction sooner may be advantageous. However, do not make purchasing decisions solely for tax reasons; the business need should drive the timing, with tax optimization as a secondary consideration.

Review Salvage Values Periodically

Salvage value estimates made at purchase may not reflect actual market conditions years later. If an asset's expected residual value changes significantly (a vehicle deteriorates faster than expected, or technology becomes obsolete sooner), you may need to revise the depreciation schedule. For financial reporting, impairment tests compare the asset's carrying value to its recoverable amount. If the carrying value exceeds what you can recover, an impairment loss is recognized. Regular reviews ensure your financial statements accurately represent asset values.

Common Mistakes to Avoid

• Depreciating land. Land is not a depreciable asset because it does not wear out or become obsolete. When purchasing real estate, allocate the purchase price between land and building based on assessed values or appraisals. Only the building portion can be depreciated.
• Forgetting to depreciate assets placed in service mid-year. If an asset starts service in June, the first year depreciation is typically prorated for only half a year (depending on the convention used). The IRS half-year convention assumes all assets are placed in service at the midpoint of the year.
• Using the wrong useful life. For tax purposes, use the IRS MACRS lives, not your own estimate. Using a shorter life than allowed creates an aggressive tax position that could trigger an audit. For book purposes, be realistic about how long you will actually use the asset.
• Not tracking asset dispositions. When you sell, scrap, or dispose of a depreciable asset, you must recognize a gain or loss based on the difference between the sale price and the current book value. Failing to record dispositions overstates asset values on your balance sheet.
• Ignoring partial business use. If an asset is used for both business and personal purposes (such as a vehicle), only the business-use percentage can be depreciated. Track and document business versus personal use with logs or records to support your deduction.