Depreciation Calculator

Depreciation is an accounting method that allocates the cost of a tangible asset over its useful life. Instead of deducting the full purchase price in year one, you spread the expense over several years. For example, a $10,000 machine expected to last 5 years depreciates at $1,800/year under straight-line (after a $1,000 salvage value). Depreciation reduces your taxable income each year the asset is in service.

Straight-line depreciation = (Cost − Salvage Value) ÷ Useful Life. For a $10,000 asset with $1,000 salvage value over 5 years: ($10,000 − $1,000) ÷ 5 = $1,800 per year. The same amount is deducted every year, making it the simplest method and the most commonly used for financial reporting.

Use straight-line for simplicity and consistent financial reporting. Use double declining balance (DDB) or sum-of-years' digits (SYD) when you want to deduct more in early years — useful for assets that lose value quickly, like computers or vehicles. For tax purposes, the IRS requires MACRS (modified accelerated cost recovery system), which this calculator does not compute — see IRS Publication 946.

Double declining balance applies twice the straight-line rate to the asset's remaining book value each year. For a 5-year asset, the straight-line rate is 20%, so DDB uses 40%. Year 1: $10,000 × 40% = $4,000. Year 2: ($10,000 − $4,000) × 40% = $2,400. The method front-loads deductions, maximizing early-year tax savings on fast-depreciating assets.

MACRS (Modified Accelerated Cost Recovery System) is the IRS-prescribed method for tax depreciation in the US. It assigns assets to recovery classes (3, 5, 7, 10, 15, 20, 27.5, or 39 years) and uses predetermined percentage tables to calculate annual deductions. This calculator uses straight-line, DDB, and SYD for financial planning estimates only — it does not calculate MACRS. For tax depreciation, use IRS Publication 946 tables or tax software.

Section 179 lets you deduct the full cost of qualifying business equipment or software in the year of purchase, rather than depreciating it over multiple years. For 2026, the deduction limit is $1,160,000. This is often combined with bonus depreciation (80% in 2026) for large asset purchases. Section 179 is a tax election — it does not appear in book (financial statement) depreciation.

IRS MACRS asset classes determine the tax recovery period: computers and technology = 5 years; office furniture and equipment = 7 years; vehicles = 5 years (cars) or 5 years (light trucks/SUVs); residential rental property = 27.5 years; commercial real estate = 39 years. These are IRS tax classes — for financial statement depreciation, you estimate the actual useful life of the asset.

Tangible business property with a useful life over 1 year: equipment, vehicles, machinery, computers, office furniture, and buildings. Land cannot be depreciated. Intangible assets (patents, trademarks, software, goodwill) use amortization instead of depreciation, typically over 15 years for tax purposes under Section 197.

Salvage value reduces the depreciable base for straight-line and SYD. A $10,000 machine with $1,000 salvage value has a $9,000 depreciable base. For DDB, salvage value is not used in the annual calculation, but depreciation stops when the book value reaches salvage value.

Yes — through Section 179 expensing or bonus depreciation. Section 179 allows full expensing up to $1,160,000 (2026 limit) for qualifying property. Bonus depreciation (80% in 2026, phasing down 20% per year) lets you deduct a large portion immediately. Both are tax elections governed by IRS rules — consult a tax professional to determine whether your specific asset qualifies.