Straight-Line Depreciation Calculator

Straight-line depreciation explained

Straight-line depreciation is the simplest and most widely used method for allocating the cost of a fixed asset over its useful life. It spreads the depreciable amount evenly across each year of the asset's life, producing the same depreciation expense every year until the asset reaches its salvage value. This makes it easy to budget and forecast, and it is accepted under both US GAAP and IFRS accounting standards.

The formula is: annual depreciation = (cost minus salvage value) divided by useful life in years. The depreciable amount is the cost minus any expected salvage value, also called the residual value. If you buy a machine for $50,000, expect it to be worth $5,000 at the end of its 5-year life, and choose straight-line depreciation, you would record $9,000 in depreciation expense each year. The book value at the end of year 5 would be exactly $5,000.

Depreciation is important because it matches the cost of a long-lived asset to the period in which it generates revenue, following the accounting principle of matching. It also reduces your taxable income each year, providing a tax benefit spread across the life of the asset rather than all in the year of purchase.

What is salvage value?

Salvage value is the estimated amount you expect to receive when you sell or dispose of the asset at the end of its useful life. It is sometimes called residual value or scrap value. If you do not expect any residual value, enter zero. The salvage value reduces the total depreciable amount: you only depreciate the portion of cost you expect to consume, not the portion you expect to recover through resale.

How do I determine an asset's useful life?

For tax purposes in the United States, the IRS publishes guidelines for asset class lives under the Modified Accelerated Cost Recovery System (MACRS). For financial reporting, you use the asset's expected economic life based on your own assessment and industry norms. Common useful life estimates include computers and technology (3 to 5 years), vehicles (5 years), furniture and fixtures (5 to 7 years), commercial buildings (39 years), and heavy machinery (7 to 15 years).

When is straight-line depreciation the right choice?

Straight-line is best when an asset provides consistent economic benefit throughout its life. A commercial building, for example, does not lose its usefulness faster in early years than in later years. For assets that do wear out faster early in their life, such as vehicles and technology equipment, accelerated depreciation methods like declining balance may better reflect reality and provide a larger tax deduction in early years when the asset is most productive.

How does depreciation affect my taxes?

Depreciation is a non-cash expense that reduces taxable income. For a profitable business, higher depreciation in a given year means lower tax in that year. Straight-line provides a steady tax deduction. Accelerated methods front-load the deduction, providing more tax relief in early years. In the US, Section 179 expensing and bonus depreciation rules can allow immediate deduction of the full cost in the year of purchase for qualifying assets, rather than spreading it over time.