Which depreciation method should I use?

Straight line for financial reporting where the asset wears evenly — buildings, furniture. Declining balance where value drops fastest early, which is most vehicles and technology. Sum-of-years sits between them. For a US tax return the answer is neither: MACRS is prescribed, and the method you use in the accounts does not have to match it.

Why does double declining balance ignore salvage value?

Because it applies a fixed rate to the remaining book value rather than to a base, so it approaches zero without reaching it. In practice the method is switched to straight line for the last years, or simply stopped once book value reaches salvage — which is what the book value line above does.

Cost minus the depreciation taken so far. It is an accounting figure, not a market price: an asset with a book value of zero can still sell for something, and one with a high book value can be worthless. The two only coincide by accident.

Is depreciation a cash expense?

No — the cash left when the asset was bought. Depreciation spreads that cost across the years the asset is used, which is why it is added back when converting profit to cash flow. It reduces taxable income without reducing the bank balance, which is the whole reason it matters to a business.

Depreciation Calculator

With cost of the asset 30000 usd, salvage value at the end 3000 usd, useful life, years 5, which year to show 1, depreciation comes to $5,400.00 — straight-line depreciation a year. It is reached in 8 steps, the last of which is 27000 / 5, and each one is printed on the page with its numbers filled in. The formula is the one published by IRS Publication 946, not an approximation fitted to it.

Straight line, declining balance and sum-of-years depreciation side by side, with the book value each leaves at the end of a year.

Formula and sources checked 27 August 2026 · How we check

Cost of the asset 30000, Salvage value at the end 3000, Useful life, years 5, Which year to show 1

$5,400.00

Straight-line depreciation a year for the example below. Editing a field recomputes the calculator below; this figure holds the answer the page was loaded with.

It is written into the HTML rather than drawn by a script, so a search engine reading this page without running JavaScript still finds an answer.

Cost of the assetusdSalvage value at the endusdUseful life, yearsWhich year to show

Straight-line depreciation a year

$5,400.00

Depreciable base: max(0, 30000 - 3000)$27,000
Straight line, each year: 27000 / 5$5,400
Declining balance rate: 2 / 5 * 10040 %
Declining balance, this year: 30000 * pow(1 - 2 / 5, 1 - 1) * 2 / 5$12,000
Sum-of-years, this year: 27000 * (5 - 1 + 1) / 15$9,000
Book value after that year, straight line: max(3000, 30000 - 5400 * 1)$24,600
Book value after that year, declining balance: max(3000, 30000 * pow(1 - 2 / 5, 1))$18,000
Straight-line expense a month: 5400 / 12$450

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Worked example

A $30,000 asset with $3,000 of salvage over five years depreciates $5,400 a year in a straight line. Double declining takes $12,000 in the first year — more than twice as much — and correspondingly less later.

How to work it out yourself

1.Set the salvage value honestly: it is what the asset is expected to be worth when you stop using it, and it is excluded from the depreciable base under straight line and sum-of-years.
2.Use the year field to step through the life. Declining balance and sum-of-years give different figures every year while straight line does not.
3.For a US tax return, none of these three is what you file. Tax depreciation uses MACRS, with its own class lives and tables, and it is described in Publication 946.

The formula

Depreciable basemax(0, 30000 - 3000)
Straight line, each year27000 / 5
Declining balance rate2 / 5 * 100
Declining balance, this year30000 * pow(1 - 2 / 5, 1 - 1) * 2 / 5
Sum-of-years, this year27000 * (5 - 1 + 1) / 15
Book value after that year, straight linemax(3000, 30000 - 5400 * 1)
Book value after that year, declining balancemax(3000, 30000 * pow(1 - 2 / 5, 1))
Straight-line expense a month5400 / 12

Source: IRS Publication 946 — How to Depreciate Property

Questions people actually ask

Which depreciation method should I use?: Straight line for financial reporting where the asset wears evenly — buildings, furniture. Declining balance where value drops fastest early, which is most vehicles and technology. Sum-of-years sits between them. For a US tax return the answer is neither: MACRS is prescribed, and the method you use in the accounts does not have to match it.
Why does double declining balance ignore salvage value?: Because it applies a fixed rate to the remaining book value rather than to a base, so it approaches zero without reaching it. In practice the method is switched to straight line for the last years, or simply stopped once book value reaches salvage — which is what the book value line above does.
What is book value?: Cost minus the depreciation taken so far. It is an accounting figure, not a market price: an asset with a book value of zero can still sell for something, and one with a high book value can be worthless. The two only coincide by accident.
Is depreciation a cash expense?: No — the cash left when the asset was bought. Depreciation spreads that cost across the years the asset is used, which is why it is added back when converting profit to cash flow. It reduces taxable income without reducing the bank balance, which is the whole reason it matters to a business.

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