Depreciation Calculator

Depreciation Calculator

Every business asset loses value over time — machinery wears out, computers become obsolete, vehicles rack up miles. Depreciation is the accounting method that spreads an asset’s cost across the years it is actually used, reducing your taxable income each year rather than taking the entire hit in year one. This calculator computes annual and monthly depreciation under the straight-line and double declining balance methods, giving you the full depreciation schedule you need for tax filings, financial statements, and capital planning.

How Depreciation Is Calculated

Straight-line formula: Annual Depreciation = (Asset Cost - Salvage Value) / Useful Life

Double declining balance (DDB) formula: Year 1: Annual Depreciation = Asset Cost x (2 / Useful Life) Subsequent years: Annual Depreciation = Remaining Book Value x (2 / Useful Life)

DDB cannot reduce book value below salvage value. The monthly figure is simply the annual depreciation divided by 12. Total depreciable amount = Asset Cost - Salvage Value.

Worked Examples

Example 1 — Office equipment ($12,000, 5-year life, $1,000 salvage, straight-line): Annual depreciation = ($12,000 - $1,000) / 5 = $2,200/year. Monthly = $183. Over 5 years, you deduct exactly $11,000 total. At a 22% tax bracket, that saves $2,420 in taxes across the asset’s life.

Example 2 — Delivery van ($45,000, 5-year life, $5,000 salvage, double declining balance): Year 1: $45,000 x (2/5) = $18,000. Year 2: ($45,000 - $18,000) x 0.40 = $10,800. Year 3: $16,200 x 0.40 = $6,480. The front-loaded deductions cut your first-year tax bill by $3,960 at a 22% rate — money you can reinvest immediately.

Example 3 — Commercial HVAC system ($80,000, 15-year life, $2,000 salvage, straight-line): Annual depreciation = ($80,000 - $2,000) / 15 = $5,200/year. Monthly = $433. If the business is in the 21% corporate tax bracket, each year’s deduction saves $1,092 in federal tax, totaling $16,380 over the life of the asset.

IRS Recovery Periods Reference Table

When to Use This Calculator

• Before purchasing equipment, to model whether straight-line or DDB better fits your cash flow and tax timeline
• When preparing Schedule C (sole proprietors) or Form 4562 to report depreciation to the IRS
• To evaluate whether Section 179 expensing or bonus depreciation makes more sense than standard depreciation for a given asset purchase
• When building multi-year financial projections that need to account for non-cash depreciation expense
• To reconcile book depreciation (for financial statements) against tax depreciation (which may differ due to accelerated methods)

Common Mistakes

1. Using the wrong useful life. Many business owners guess at asset lives. The IRS specifies MACRS recovery periods — using 10 years for a 5-year asset means underclaiming deductions for 5 years, then overclaiming. Match the IRS schedule for tax purposes.
2. Forgetting the salvage value. Straight-line depreciation is calculated on the net depreciable amount (cost minus salvage), not the full purchase price. Skipping salvage value overstates annual expense and the cumulative deduction.
3. Mixing book and tax depreciation. Book depreciation (for financial statements) can use any method. Tax depreciation must follow MACRS rules. Running one schedule for both creates errors — maintain separate records if they differ.
4. Missing Section 179 and bonus depreciation. For qualifying equipment, Section 179 (up to $1,220,000 for 2026) and bonus depreciation allow immediate full expensing in year one. Many owners default to standard depreciation and miss years of accelerated tax savings.

Current Context for 2026

Bonus depreciation continues its scheduled phase-down: 40% for 2025 assets placed in service and 20% for 2026, before reaching 0% in 2027 under current law unless Congress acts. This means 2026 is likely the last year any bonus depreciation is available under the Tax Cuts and Jobs Act provisions. Businesses planning equipment purchases should model total deductions under standard MACRS, Section 179, and remaining bonus depreciation before deciding. The Section 179 limit for 2026 is expected near $1,220,000, with phase-out beginning around $3,050,000 in total purchases.

Tips

1. Run both the straight-line and DDB schedules side by side — DDB front-loads deductions, which is valuable if you need to reduce taxes now, while straight-line smooths expenses evenly across years.
2. For vehicles over 6,000 pounds GVWR, separate luxury auto limits do not apply and you may take larger first-year deductions under Section 179 or bonus depreciation.
3. Place assets in service before December 31 to claim a full year’s depreciation under the half-year convention, which applies to most personal property.
4. Keep purchase records (invoices, receipts, settlement statements) permanently — the IRS can audit depreciation schedules years after the original purchase when you sell the asset and calculate gain.
5. When you sell a depreciated asset, the IRS recaptures the depreciation as ordinary income (Section 1245 recapture), so factor that into your sale decision alongside capital gains rates.
6. Review your depreciation schedule every year for assets that have been retired, sold, or fully depreciated so they are removed from your records.

Related Calculations

• Tax Calculator — see how depreciation deductions reduce your overall federal income tax liability
• Profit Margin Calculator — factor depreciation expense into your true operating margin
• ROI Calculator — compute return on investment for equipment purchases net of tax savings from depreciation
• Salary Calculator — understand how business deductions including depreciation affect owner’s compensation planning