Business Depreciation Calculator
Calculate the annual depreciation deduction for a business asset using straight-line, double declining balance, or MACRS methods. Helpful at tax time or when budgeting asset replacement costs.
About this calculator
Depreciation spreads the cost of a business asset over its useful life, reflecting how the asset loses value over time. Three common methods are supported. Straight-Line spreads cost evenly: Depreciation = (assetCost − salvageValue) / usefulLife. Double Declining Balance accelerates deductions in early years: Depreciation = assetCost × (2 / usefulLife), applied to the remaining book value each year. MACRS (Modified Accelerated Cost Recovery System) uses IRS-prescribed percentage rates based on asset class life — approximately 20% for 5-year property, 14% for 7-year property, and 10% for longer-lived assets. Choosing the right method affects both your annual taxable income and cash flow. Section 179 and bonus depreciation rules may also allow full first-year expensing, which is separate from these methods.
How to use
Say you purchase equipment for $50,000 with a $5,000 salvage value and a 7-year useful life, and you choose straight-line depreciation. Annual depreciation = ($50,000 − $5,000) / 7 = $45,000 / 7 ≈ $6,429 per year. Using double declining balance instead: $50,000 × (2 / 7) ≈ $14,286 in year one, then applied to the reduced book value each subsequent year. Under MACRS with a 7-year class life: $50,000 × 0.14 = $7,000 in the first applicable year. Each method yields a different deduction, affecting your taxable income differently each year.
Frequently asked questions
What is the difference between straight-line and double declining balance depreciation?
Straight-line depreciation deducts an equal amount every year over the asset's useful life, making it simple and predictable. Double declining balance (DDB) front-loads deductions, giving you a larger write-off in the early years and smaller ones later. DDB is beneficial when you want to reduce taxable income quickly or when assets lose value faster at the start. However, DDB switches to straight-line once the straight-line amount exceeds the declining balance amount to ensure full cost recovery.
What is MACRS depreciation and when does the IRS require it?
MACRS (Modified Accelerated Cost Recovery System) is the standard depreciation method required by the IRS for most business property placed in service after 1986. It assigns assets to specific recovery periods (e.g., 5-year, 7-year, 15-year) and uses predetermined percentage tables. MACRS generally allows faster deductions than straight-line, benefiting businesses with significant capital investments. Real property such as commercial buildings typically uses a straight-line method over 39 years under MACRS rules.
How does salvage value affect my depreciation deduction?
Salvage value is the estimated residual worth of an asset at the end of its useful life. Under straight-line depreciation, salvage value is subtracted from the asset cost before dividing by useful life, which reduces the total deductible amount. For MACRS and double declining balance methods, salvage value is generally ignored because the IRS tables already account for recovery limits. Accurately estimating salvage value matters most when using straight-line, as overestimating it reduces your annual tax deduction.