Depreciation Calculator

How to use it
  1. Choose the method.
  2. Enter the cost basis B: what the asset cost, installed and ready for use.
  3. For the book methods, enter the salvage value S expected at the end of its life, and the useful life n in whole years.
  4. For MACRS, enter the recovery period from IRS Publication 946: 3, 5, 7, 10, 15 or 20 years for the half-year convention, or 39 years for nonresidential real property, with the month it was placed in service. MACRS ignores salvage.
  5. The year-by-year schedule appears and updates as you type.

To see it filled in, choose “Show an example”. This is an estimate for comparing alternatives and for study. It does not cover bonus depreciation, section 179, the mid-quarter convention or the alternative depreciation system; confirm a tax filing with a tax professional.

Result

Enter the cost basis.

BVt = B − (d1 + … + dt). MACRS percentages are those printed in IRS Publication 946, Tables A-1 and A-7a; the last year takes up the rounding.

Methodology, equations and examples

Depreciation spreads the cost of an asset over the years it is used. In engineering economics it matters because depreciation lowers taxable income, so it changes the after-tax cash flows used to compare alternatives. This calculator gives the schedule four ways: the three classical book methods and MACRS, the system the IRS requires for most property placed in service in the United States after 1986. The notation follows engineering-economy texts such as Blank & Tarquin and Newnan.

Variables

  • B – Cost basis: the first cost, including installation and anything needed to put the asset in service
  • S – Estimated salvage value at the end of the life
  • n – Useful life (book methods) or recovery period (MACRS), in years
  • t – Year, 1 to n
  • dt – Depreciation charged in year t
  • BVt – Book value at the end of year t, B minus the depreciation charged so far

Straight line (SL)

The same amount is charged every year:

dt = (B − S) / n

Declining balance (DB and DDB)

A fixed fraction R of the book value at the start of each year is charged, so the charge falls every year:

dt = R × BVt−1, with R = 2/n for double declining balance and R = 1.5/n for 150 % declining balance.

Declining balance alone never reaches the salvage value, so the calculator does what the texts recommend. Each year it compares the declining-balance charge with straight line on what is left, (BVt−1 − S) / (n − t + 1), and charges the larger. Once straight line is larger it stays larger, so this is a single switch. No charge takes the book value below S.

Sum-of-years'-digits (SYD)

Each year's charge is a falling fraction of B − S. The fractions' denominator is the sum of the years' digits, n(n + 1)/2:

dt = (n − t + 1) / [n(n + 1)/2] × (B − S)

MACRS

The Modified Accelerated Cost Recovery System sets the recovery period by the class of property and gives the depreciation as a percent of B each year. Salvage is taken as zero. The calculator uses the percentages exactly as IRS Publication 946 prints them:

  • Table A-1, the general depreciation system (GDS) with the half-year convention, for 3, 5, 7, 10, 15 and 20-year property. These rates are 200 % declining balance switching to straight line (150 % for 15 and 20-year property). The half-year convention treats the asset as placed in service halfway through year 1, so an n-year class takes n + 1 tax years.
  • Table A-7a, nonresidential real property, 39 years straight line with the mid-month convention. Year 1's percentage depends on the month the property was placed in service, years 2 to 39 are each 2.564 %, and year 40 holds the remainder.

Publication 946 Appendix B lists which property belongs in each class. The calculator does not cover bonus depreciation, the section 179 deduction, the mid-quarter convention (required when more than 40 % of a year's property is placed in service in its last quarter) or the alternative depreciation system. It estimates; confirm a tax filing with a tax professional.

Example

An asset costs $10,000 installed, with an estimated $1,000 salvage value after a 5-year life, so B − S = $9,000.

Straight line: dt = $9,000 / 5 = $1,800 every year, and BV5 = $1,000.

Double declining balance, R = 2/5 = 0.40: year 1 is 0.40 × $10,000 = $4,000, year 2 is 0.40 × $6,000 = $2,400, year 3 is $1,440 and year 4 is $864, leaving $1,296. Year 5's 0.40 × $1,296 = $518.40 would go below salvage, so it is held to $296. Straight line never takes over here, because the salvage value stops the schedule first.

150 % declining balance, R = 1.5/5 = 0.30: $3,000, $2,100 and $1,470 in years 1 to 3, leaving $3,430. In year 4 straight line on the rest is ($3,430 − $1,000) / 2 = $1,215, more than 0.30 × $3,430 = $1,029, so it takes over: $1,215 in years 4 and 5.

Sum-of-years'-digits: the digits sum to 5 × 6 / 2 = 15, so the charges are 5/15, 4/15, 3/15, 2/15 and 1/15 of $9,000: $3,000, $2,400, $1,800, $1,200 and $600.

MACRS, as 5-year property: Table A-1 gives 20.00 %, 32.00 %, 19.20 %, 11.52 %, 11.52 % and 5.76 %, so $2,000, $3,200, $1,920, $1,152, $1,152 and $576 over six tax years, recovering the full $10,000.

Every book method recovers the same $9,000. They differ only in timing, and the faster methods are worth more in present worth because the tax savings come sooner.

Example: 39-year property

A $390,000 nonresidential building is placed in service in January. Table A-7a gives 2.461 % for year 1, so d1 = $9,597.90. Years 2 to 39 are 2.564 %, $9,999.60 each, and year 40 is 0.107 %, $417.30. The total is $390,000.

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