Depreciation Calculator

Depreciation is how accounting spreads the cost of a long-lived asset over the years it helps earn revenue, instead of expensing the whole purchase at once. A delivery van bought this year will generate deliveries for five or more years, so charging its full cost against this year’s profit would overstate this year’s expenses and understate every later year’s. Each period records a depreciation expense on the income statement while accumulated depreciation builds up on the balance sheet, walking the asset’s book value down from cost toward its salvage value.

Straight-line charges the same expense every year: the depreciable base divided by the useful life. Accelerated methods — double-declining balance and sum-of-the-years’-digits — charge more in the early years and less later, though the total depreciated over the asset’s life is identical. Accelerated methods fit assets that deliver most of their value early or lose market value fast, such as vehicles and computers. Because early expenses are higher, accelerated methods report lower profit in the first years and higher profit later, which is purely a timing difference.

Salvage value (also called residual value) is the amount you expect to recover when you dispose of the asset at the end of its useful life — a trade-in price, resale value, or scrap value. It is subtracted from cost before depreciating, because that slice of the purchase price is expected to come back to you rather than be used up. An asset is never depreciated below its salvage value: once book value reaches it, depreciation stops. Salvage value is an estimate, and companies commonly use zero when the recovery is expected to be trivial.

This page covers book depreciation — the GAAP methods used on financial statements to match an asset’s cost to the revenue it produces. US tax depreciation is a separate system: MACRS (the Modified Accelerated Cost Recovery System, described in IRS Publication 946) assigns assets to fixed recovery periods, ignores salvage value, and applies prescribed percentage tables rather than your own estimates. A company routinely uses straight-line on its financial statements and MACRS on its tax return at the same time; the two schedules produce temporary differences that unwind over the asset’s life.

No. Land is not depreciated, because it has an unlimited useful life — it does not wear out, become obsolete, or get used up the way buildings and equipment do. When a business buys property, the purchase price must be split between the land and the building on it; only the building portion is depreciated. Improvements with finite lives — fences, parking lots, landscaping with a limited life — can be depreciated as land improvements. The same rule holds for tax purposes under MACRS: land itself is never deductible through depreciation.