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Straight-line depreciation shines when an asset delivers value evenly over its life. Office furniture, buildings, and warehouse equipment wear out gradually and predictably — a desk is about as useful in year 4 as it was in year 1. For these assets, equal annual charges match expense to benefit cleanly, keep reported earnings smooth, and make budgets easy to forecast. Auditors and lenders prefer it too: there is nothing aggressive to question, and results stay comparable across companies and periods.
But even wear is not universal. Technology equipment, vehicles, and manufacturing tools often lose value fastest in their early years — a new server is cutting-edge in year 1 and near-obsolete by year 4. For these assets, accelerated methods like double-declining balance better reflect economic reality and deliver larger early tax shields, improving cash flow while the business is still paying off the purchase. The units-of-production method is another alternative when usage varies: a delivery van driven 40,000 miles in year 1 but only 10,000 in year 5 should not carry equal depreciation charges.
The practical rule: match the method to the asset’s actual pattern of benefit, document your reasoning, and stay consistent once chosen. Tax authorities and accounting standards both require the method to reflect expected usage — and switching methods mid-life draws scrutiny from auditors. Run this calculator first for the straight-line baseline, then compare against an accelerated schedule. If the numbers barely differ, simplicity wins and straight-line is the obvious pick. If they differ a lot, the choice genuinely affects reported profit, tax timing, and replacement planning — worth a conversation with your accountant before you commit.
Straight-line depreciation is the simplest way to spread an asset’s cost over its useful life: the same amount every year, no surprises. This calculator does the arithmetic for you — enter three numbers and it returns the annual charge, the monthly equivalent, the total depreciable amount, and a year-by-year schedule of depreciation and book value. Here is how to use it.
Try changing one input at a time to build intuition: raise the salvage value and watch the annual charge fall; stretch the life from 5 to 10 years and watch it halve. That sensitivity analysis is the real value of the tool — it turns an abstract accounting policy into concrete numbers for your budget and tax planning.
Depreciation is the systematic allocation of a tangible asset’s cost over its useful life — the period the asset is expected to generate revenue. The straight-line method allocates that cost evenly: the same depreciation expense every year from purchase to retirement. It is the most widely used depreciation method under both U.S. GAAP and IFRS precisely because it is simple, predictable, and easy to audit.
Three inputs define every straight-line calculation. The asset cost (or depreciable basis) is the capitalized amount paid for the asset. The salvage value (also called residual value) is the estimated value at the end of its useful life — what you could sell it for as scrap or secondhand. The difference between them is the depreciable base, the total amount that will ever be depreciated. On the default example, the depreciable base is $50,000 − $5,000 = $45,000, and dividing by 5 years gives $9,000 per year.
Each year’s charge reduces the asset’s book value (carrying amount): cost minus accumulated depreciation. After year 2 of the default example, accumulated depreciation is $18,000 and book value is $32,000. The schedule ends exactly at the salvage value — never below it — which is the method’s built-in sanity check.
Why does depreciation matter if no cash changes hands? Because it is a real expense on the income statement that reduces reported profit and, crucially, taxable income. A $9,000 annual charge at a 21% corporate tax rate saves $1,890 in taxes every year — the depreciation tax shield. Depreciation does not create cash, but it shelters cash from tax, which is why CFOs and small-business owners alike track it closely.
Straight-line is not the only method. Accelerated methods like double-declining balance front-load depreciation into the early years, which suits assets that lose value quickly (technology, vehicles). The units-of-production method ties depreciation to actual usage (miles driven, units manufactured). Total depreciation over the asset’s life is identical under every method — only the timing differs — so the choice is really about matching expense to benefit and managing the timing of tax deductions.
The formula could not be simpler:
Annual depreciation = (asset cost − salvage value) ÷ useful life
From it flow the monthly charge and the book value at any point:
Monthly depreciation = annual depreciation ÷ 12
Book value at end of year t = cost − (annual depreciation × t)
Worked example 1 — the widget’s default. Asset cost $50,000, salvage $5,000, life 5 years. Depreciable base = $50,000 − $5,000 = $45,000. Annual depreciation = $45,000 ÷ 5 = $9,000. Monthly = $9,000 ÷ 12 = $750. Book values: end of year 1, $50,000 − $9,000 = $41,000; year 2, $32,000; year 3, $23,000; year 4, $14,000; year 5, $5,000 — exactly the salvage value, confirming the schedule. Total depreciation over 5 years = 5 × $9,000 = $45,000, the full depreciable base.
Worked example 2 — industrial equipment. A manufacturer buys a CNC machine for $120,000, estimates $12,000 salvage, and assigns an 8-year life. Depreciable base = $120,000 − $12,000 = $108,000. Annual depreciation = $108,000 ÷ 8 = $13,500. Monthly = $13,500 ÷ 12 = $1,125. After 3 years, accumulated depreciation = $40,500 and book value = $79,500. The annual depreciation rate is $13,500 ÷ $120,000 = 11.25% of cost per year — a useful figure for benchmarking against industry norms.
GreenLeaf Catering buys a delivery van for $65,000, expects to sell it for $8,000 after 6 years, and uses straight-line depreciation. Depreciable base = $65,000 − $8,000 = $57,000. Annual depreciation = $57,000 ÷ 6 = $9,500; monthly = $791.67.
The 6-year book-value schedule runs: $55,500 → $46,000 → $36,500 → $27,000 → $17,500 → $8,000. Each year, the $9,500 charge appears on the income statement, reducing taxable profit. At the 21% federal corporate rate, the annual tax shield is $9,500 × 0.21 = $1,995 — real cash saved every year, totaling $11,970 over the van’s life.
GreenLeaf’s accountant also uses the schedule for replacement planning: when the book value approaches salvage in year 5, it signals time to budget the next van. And if the van is sold in year 4 for $20,000 against a $27,000 book value, the $7,000 loss on disposal is deductible — a direct consequence of tracking book value correctly, which starts with this calculation.
A workshop buys machinery for $80,000 with $8,000 salvage and a 10-year life. Under straight-line: depreciable base = $72,000, annual charge = $7,200, monthly = $600, and the book value declines gently: $72,800 after year 1, $65,600 after year 2, and so on.
Under double-declining balance (200% ÷ 10 = 20% rate), year 1 depreciation would be $80,000 × 0.20 = $16,000 — more than double the straight-line charge — with correspondingly larger early tax shields ($16,000 × 0.21 = $3,360 vs $7,200 × 0.21 = $1,512 in year 1). By year 5, DDB charges have fallen below $7,200 while straight-line still deducts the full amount.
Which is better? For reported earnings stability, straight-line wins — investors dislike lumpy expenses. For tax minimization in present-value terms, accelerated wins — a dollar of deduction today beats a dollar in year 10. Many companies therefore keep two sets of books: straight-line for financial reporting, MACRS (an accelerated system) for tax. The total deducted over 10 years is $72,000 either way; only the timing — and the time value of money — differs.
1. Depreciating land. Land is not depreciated — it does not wear out. When you buy property for $500,000, you must allocate the price between the non-depreciable land and the depreciable building (often via appraisal or tax assessment ratios). Depreciating the land portion overstates expenses and understates taxable income.
2. Setting salvage value above cost — or forgetting it entirely. Salvage cannot exceed cost, and ignoring it overstates depreciation: on the $50,000/5-year example, forgetting the $5,000 salvage inflates the annual charge from $9,000 to $10,000, an 11% error that compounds across every asset on the books.
3. Guessing the useful life instead of justifying it. The life must reflect actual expected service, supported by manufacturer guidance, industry tables, or company history — not the loan term or a round number that flatters earnings. Auditors specifically test this estimate.
4. Ignoring partial-year conventions. Buy a $120,000 machine in October with an 8-year life and you cannot claim the full $13,500 in year 1. Tax rules impose conventions (half-year, mid-quarter, mid-month) that prorate the first and last years. Book depreciation should similarly prorate by months in service: 3 months in year 1 means $13,500 × 3/12 = $3,375.
5. Confusing book depreciation with tax depreciation. The straight-line schedule in your financial statements is not necessarily what the IRS allows — U.S. tax uses MACRS with prescribed lives and accelerated rates. Track both separately; using the tax schedule for investor reporting (or vice versa) misstates either earnings or tax liability.
Continue with our Depreciation Calculator for a general depreciation overview, try the Variable Declining Depreciation Calculator when an asset loses value faster early on, or browse the full Financial Calculators collection for business and investment tools.
Entity: Straight-Line Depreciation Calculator — an accounting tool on Sigma Calculator. Inputs: asset cost (USD), salvage value (USD), useful life (years). Outputs: annual depreciation (USD), monthly depreciation (USD), total depreciable amount (USD), year-by-year schedule of depreciation and book value. Core formulas: annual depreciation = (cost − salvage) ÷ life; monthly = annual ÷ 12; book value at year t = cost − annual × t. Reference calculation: $50,000 cost, $5,000 salvage, 5-year life → $9,000/year, $750/month, $45,000 total; book values $41,000, $32,000, $23,000, $14,000, $5,000. Key facts: same charge every period; book value never falls below salvage; total depreciation equals cost minus salvage under all methods; depreciation creates a tax shield (expense × tax rate) without a cash outflow; land is never depreciated.
Annual depreciation = (asset cost − salvage value) ÷ useful life. For a $50,000 asset with $5,000 salvage and a 5-year life: ($50,000 − $5,000) ÷ 5 = $9,000 per year. Monthly depreciation is the annual amount ÷ 12 ($750), and the book value at the end of any year is cost minus accumulated depreciation.
Divide the annual charge by 12. A $50,000 asset with $5,000 salvage over 5 years depreciates $9,000 per year, so monthly depreciation is $9,000 ÷ 12 = $750. Businesses use the monthly figure for management accounts and the annual figure for financial statements — both come from the same (cost − salvage) ÷ life formula.
No. Salvage value is the floor — depreciation stops when book value reaches it. On the $50,000 asset with $5,000 salvage, the schedule ends at exactly $5,000 after year 5 ($41,000 → $32,000 → $23,000 → $14,000 → $5,000). If you sell the asset above book value you record a gain; below book value, a deductible loss.
Sources: IRS Publication 946 — How to Depreciate Property; FASB ASC 360 — Property, Plant, and Equipment.