Depreciation Calculator
By Talcart · Last updated July 10, 2026
Depreciation Guide
Understanding Depreciation
Basic Formula
Annual Depreciation = (Asset Cost - Salvage Value) / Useful Life
Example: ($100,000 - $10,000) / 5 years = $18,000 per year
Key Terms
Asset Cost: Initial purchase price
Salvage Value: Estimated value at end of useful life
Useful Life: Expected period of use in years
Depreciation Calculator
This depreciation calculator builds a full year-by-year schedule for any asset: a $10,000 machine with a $1,000 salvage value and a 5-year life depreciates at $1,800 per year straight-line, or $4,000 in year one under double-declining balance. Compare methods side by side to see how each spreads the same total cost across the P&L.
Key facts
- Straight-line: a $10,000 asset with $1,000 salvage and a 5-year life expenses exactly $1,800 per year.
- The double-declining rate is 2 ÷ life — 40% per year for a 5-year asset, applied to remaining book value, never below salvage.
- Sum-of-years digits for a 5-year life uses denominator 1+2+3+4+5 = 15: year one takes 5/15 of the depreciable base, year five just 1/15.
- Every method expenses the same lifetime total (cost minus salvage); they differ only in which years bear the charge.
What is the Depreciation Calculator?
Depreciation is the systematic allocation of a tangible asset’s cost over its useful life, so each accounting period bears a share of the asset’s expense rather than the purchase year absorbing it all. The three classic methods are straight-line (equal annual amounts), declining balance (a fixed percentage of the shrinking book value, front-loading expense), and sum-of-years digits (a falling fraction of the depreciable base). All methods expense the same total — cost minus salvage value — and differ only in timing.
How does the Depreciation Calculator work?
Straight-line charges (Cost − Salvage) ÷ Life each year: ($10,000 − $1,000) ÷ 5 = $1,800. Double-declining balance applies a rate of 2 ÷ Life to the current book value — 40% for a 5-year asset — giving $4,000, then $2,400, then $1,440, and stops depreciating once book value reaches salvage. Sum-of-years digits multiplies the $9,000 depreciable base by fractions with denominator 1+2+3+4+5 = 15, so year one takes 5/15 ($3,000) and year five takes 1/15 ($600).
What is the Depreciation Calculator formula?
- Cost – purchase price
- Salvage – residual value
- Life – useful life in years
Straight-line vs double-declining: $10,000 cost, $1,000 salvage, 5 years
| Year | Straight-line expense | SL book value (year-end) | DDB expense (40%) | DDB book value (year-end) |
|---|---|---|---|---|
| 1 | $1,800 | $8,200 | $4,000 | $6,000 |
| 2 | $1,800 | $6,400 | $2,400 | $3,600 |
| 3 | $1,800 | $4,600 | $1,440 | $2,160 |
| 4 | $1,800 | $2,800 | $864 | $1,296 |
| 5 | $1,800 | $1,000 | $296 | $1,000 |
How do you use the Depreciation Calculator?
- Enter cost, salvage, life.
- Pick method.
- Read schedule and book values.
Worked example
| Scenario | $10,000 asset, $1,000 salvage, 5 years |
| Calculation | (10000 − 1000) / 5 |
| Result | $1,800/year straight-line. |
Common use cases
Tips & best practices
Declining balance front-loads depreciation — useful for tax timing.
Frequently asked questions
Subtract the salvage value from the cost and divide by the useful life: Annual Depreciation = (Cost − Salvage) ÷ Life. A $10,000 asset with a $1,000 salvage value and a 5-year life depreciates ($10,000 − $1,000) ÷ 5 = $1,800 per year. Book value falls in a straight line from $10,000 to $1,000 over the five years — hence the name.
Double-declining balance (DDB) is an accelerated method that charges twice the straight-line rate against the asset’s remaining book value each year. For a 5-year asset the rate is 2 ÷ 5 = 40%: a $10,000 machine depreciates $4,000 in year one, $2,400 in year two and $1,440 in year three. Salvage value is ignored in the rate but acts as a floor — depreciation stops once book value reaches it.
Use straight-line for simplicity and smooth earnings, and an accelerated method when the asset genuinely loses value fastest early or when you want larger tax deductions sooner. Straight-line is the most common choice for financial reporting; declining balance suits technology and vehicles; and in the US, tax depreciation generally follows MACRS regardless of the book method. All methods expense the same total — only the timing differs.
No — depreciation is a non-cash accounting expense; the cash left when the asset was purchased. A $1,800 annual depreciation charge reduces reported profit and (through the tax deduction) taxable income, but no money moves in the depreciation year itself. That is why cash-flow statements add depreciation back to net income, and why profitable-looking firms can differ sharply in cash generation.
MACRS (Modified Accelerated Cost Recovery System) is the mandatory depreciation system for US federal tax, assigning each asset class a recovery period and an accelerated schedule. Computers and cars are 5-year property, office furniture 7-year, residential rental buildings 27.5-year, and nonresidential real property 39-year. MACRS ignores salvage value entirely and typically applies a half-year convention in the first year; IRS Publication 946 lists the full class tables.
No — land is never depreciated, because it has an unlimited useful life and does not wear out. When a property is purchased, the price must be split between the building (depreciable) and the land (not), typically using the assessed-value ratio. Improvements attached to land, such as fences, paving and drainage, are depreciable as separate assets with their own recovery periods.