What depreciation method should I use?

Straight line depreciation is the easiest and works well for assets that produce a steady performance as it spreads out costs evenly. Accelerated depreciation methods like declining balance or sum of years digits allow you to front load expenses and are therefore good for assets whose value falls quickly. Regardless of which method you choose, the total amount recorded will be the same; the only difference is when.

What is residual value?

The residual value, also called the salvage or scrap value, is the value an asset is expected to have at the end of its useful life. Subtracting the residual value from the acquisition cost gives you the depreciation basis. If an asset has no value, use zero. In this case, the entire acquisition cost will be depreciated.

Why does the diminishing depreciation not exactly reach the residual value?

The declining balance method applies a constant rate to the shrinking book value, thus approaching but never quite reaching the residual value. This calculation tool limits depreciation in the last year to ensure that the book value ends up exactly at the residual value. This is standard practice.

What is double-declining balance depreciation?

Double declining balance is a form of accelerated depreciation with a factor of 2 where the rate is twice that of straight-line depreciation. This is the most common method for accelerated depreciation. You can use this method if you set the factor to 2 and select double declining balance.

How is the partial period in year one calculated?

If an asset is put into service in the middle of a year, depreciation for the first year will be prorated based on the number of months it was used and the remainder carried over to an additional period at the end of the year. With a half-year convention, 6 months are considered. The total amount of depreciation does not change.

Depreciation Calculator

Asset details

Depreciation method

Straight line

Declining balance

Sum of the years' digits

Asset cost

Salvage value

Useful life (years)

Asset placed in service partway through year one

Prorate the first year and carry the remainder into an extra final year.

Show the book value at a specific year

Look up accumulated depreciation and remaining book value at any year.

Enter the asset cost and useful life to build the depreciation schedule.

Please input values into the fields

This depreciation calculator spreads the total cost of a property over several years in which it is used rather than expensing it all at once. Enter the acquisition cost, residual value and useful life of the asset and select a method. The tool will provide a complete depreciation schedule showing the depreciation for each year, the remaining book value and the ability to display or graph these values.

What is depreciation?

Depreciation is the loss in value of an asset over time due to wear and tear, aging or obsolescence. In accounting, depreciation is a method for allocating the cost of an item of property, plant and equipment over its useful life. Instead of buying a machine outright and expensing it all at once, which would reduce profits in the year of purchase and artificially inflate profits in subsequent years, the expense is spread out over the asset's useful life.

Three values determine the entire depreciation schedule: The acquisition cost is the amount paid for the asset including transportation and installation costs. The residual value is the worth of the asset at the end of its useful life, also called resale or scrap value. The useful life is the estimated number of years that the asset will be used. The actual depreciated amount is the depreciation basis, which is the acquisition cost minus the residual value.

How to use this calculator:

Select a method and enter the cost basis, salvage value, and useful life. The depreciation for year one, total depreciated amount, and annual depreciation schedule will be updated in real-time as you make your entries.

The Fixed Depreciation method allows you to set factors. The 2 stands for double linear depreciation, which is the most common option for accelerated depreciation. If an asset was put into service during a year, activate the "Partial first year" option and enter the number of months it was used. Half years are equivalent to 6 months. By activating the "Book value inquiry", you can check the accumulated depreciation and remaining book value for any given year.

The straight-line depreciation method.

Straight-line depreciation is the simplest and most common method. It involves a constant rate of depreciation over an asset's entire useful life.

\text{Annual depreciation} = \frac{\text{Cost} - \text{Salvage}}{\text{Useful life}}

For an asset with a cost of $11,000, a salvage value of $1,000 and a useful life of five years, the depreciation basis is $10,000, so $2,000 will be depreciated each year until the book value reaches the salvage value.

Degressive depreciation method.

The constant rate method is a type of accelerated depreciation method that results in higher depreciation amounts in the early years, as a constant percentage is applied to the remaining book value while annual depreciation decreases over time. This percentage is determined by multiplying a factor and the constant depreciation factor.

\text{Depreciation}_t = \text{Book value}_{t-1} \times \frac{\text{factor}}{\text{Useful life}}

If the depreciation rate is 2 and the useful life is 5 years, then the value loss rate is 40 percent. For the same asset worth €11,000, in the first year €4,400 will be depreciated, after which annual depreciation of 40 percent of book value will be recorded. No residual value is deducted upfront but depreciation stops once the book value reaches the residual value.

Sum of years' digits method

The sum of the years' digits method is a type of accelerated depreciation in which the depreciable base is weighted based on the proportion of remaining useful life to the total number of years.

\text{Depreciation}_t = (\text{Cost} - \text{Salvage}) \times \frac{n - t + 1}{n(n+1)/2}

where n is the useful life and t is the year. For a five-year useful life, the sum of the numbers would be fifteen so in the first year five fifteenths of the depreciable base amount and in the fifth year one fifteenth would be recorded. With this asset having a depreciation rate of 11,000, an amount of 3,333.33 would be recorded in the first year decreasing to 666.67 by the fifth year.

The table below compares depreciation in year one for various methods on the same asset.

Method	Year-one depreciation	Pattern
Straight line	2,000	Level every year
Double-declining balance	4,400	Front-loaded, tapering
Sum of the years' digits	3,333.33	Front-loaded, tapering

What method should be used?

The straight-line method is suitable for assets that provide stable performance, such as furniture and buildings, and also stabilizes reported profits. The accelerated depreciation method is suitable for assets whose value decreases quickly or which primarily generate income at the beginning, such as vehicles and technical equipment. It allows costs to be deferred and thus taxes to be postponed. Regardless of the chosen method, the total amount recorded is the same; the only difference is in timing. Tax laws such as MACRS in the US stipulate specific useful lives and depreciation practices. Please check the applicable rules before filing.

This depreciation calculator is for educational and planning purposes only and does not constitute tax or accounting advice. As the rules of depreciation vary by country, region and asset type, you should consult a qualified professional or your local tax authority regarding method, useful life and depreciation practices.

Frequently asked questions

What depreciation method should I use?: Straight line depreciation is the easiest and works well for assets that produce a steady performance as it spreads out costs evenly. Accelerated depreciation methods like declining balance or sum of years digits allow you to front load expenses and are therefore good for assets whose value falls quickly. Regardless of which method you choose, the total amount recorded will be the same; the only difference is when.
What is residual value?: The residual value, also called the salvage or scrap value, is the value an asset is expected to have at the end of its useful life. Subtracting the residual value from the acquisition cost gives you the depreciation basis. If an asset has no value, use zero. In this case, the entire acquisition cost will be depreciated.
Why does the diminishing depreciation not exactly reach the residual value?: The declining balance method applies a constant rate to the shrinking book value, thus approaching but never quite reaching the residual value. This calculation tool limits depreciation in the last year to ensure that the book value ends up exactly at the residual value. This is standard practice.
What is double-declining balance depreciation?: Double declining balance is a form of accelerated depreciation with a factor of 2 where the rate is twice that of straight-line depreciation. This is the most common method for accelerated depreciation. You can use this method if you set the factor to 2 and select double declining balance.
How is the partial period in year one calculated?: If an asset is put into service in the middle of a year, depreciation for the first year will be prorated based on the number of months it was used and the remainder carried over to an additional period at the end of the year. With a half-year convention, 6 months are considered. The total amount of depreciation does not change.

Related calculators

Property Depreciation CalculatorCalculate property and asset depreciation with straight-line, declining balance, sum-of-years-digits, or units of production, plus a full schedule.

Appliance Depreciation CalculatorEstimate an appliance's current value and depreciation using actual cash value, straight-line, declining balance, or the IRS MACRS 5-year schedule.

Present Value CalculatorFind the present value of a future sum or an annuity by discounting cash flows, with reverse solving for the rate or time, a sensitivity band, and a year-by-year discounting schedule.

CAGR CalculatorCalculate the compound annual growth rate (CAGR) of an investment, or solve for the starting value, ending value, or number of years. Includes total return, doubling time, a benchmark comparison, a growth chart, and a year-by-year table.

Time Value of Money CalculatorSolve any time-value-of-money problem: enter four of present value, interest rate, years, payment, and future value, and the calculator finds the fifth, with compounding, payment timing, and inflation adjustment.

CAGR CalculatorWork out a compound annual growth rate over a period entered as years, months and days or as two exact dates. Solves for the rate, the ending value, the starting value or the time required, and shows compounding against a simple average.

Disclaimer: This calculator is provided for general informational and educational purposes only. Our calculators are under active development, and results may be inaccurate, incomplete, or unsuitable for your situation. Always verify the figures independently and seek advice from a qualified professional before relying on them. We make no warranties and accept no liability for any loss or decision arising from use of this tool.

References

IRS Publication 946: How To Depreciate Property
U.S. tax rules for depreciation, useful lives, and conventions (MACRS).
Investopedia: Depreciation
Definitions and worked examples for the main depreciation methods.