Depreciation calculator

How does straight-line depreciation work?

Subtract the salvage value from the cost and divide by the useful life (IRS Pub. 946): $10,000 with $1,000 salvage over 5 years is $1,800 a year.

How does double-declining balance work?

Each year, take 2 ÷ life of the remaining book value — 40% a year for 5 years — without going below the salvage value. You can switch to straight-line when it gives more; for tax MACRS the switch is built into the IRS tables.

What is MACRS?

The tax depreciation system in IRS Publication 946. Table A-1 gives the percentage for each year under the half-year convention: 5-year property is 20%, 32%, 19.2%, 11.52%, 11.52% and 5.76%.

Which MACRS class is my property?

Pub. 946 puts cars, light trucks and computers in the 5-year class, and office furniture and fixtures in the 7-year class. Land improvements such as fences and sidewalks are 15-year property.

Example from the IRS

A $14,500 car in the 5-year class has a first-year MACRS deduction of 20%, or $2,900. $15,000 of 7-year property gives 14.29%, or $2,144.

Can I depreciate land?

No. IRS Publication 946 says land is not depreciable, so when you buy a building you split the price and depreciate only the building. Costs of preparing land for business use, such as landscaping, can be depreciated. Residential rental buildings are depreciated over 27.5 years and nonresidential real property over 39 years; those recovery periods use a different table from the Table A-1 classes in this calculator.

Does MACRS use a salvage value?

This calculator does not apply one for MACRS: the Table A-1 percentages are multiplied by the depreciable basis, and over the recovery period they add up to 100%. The salvage field matters only for the straight-line and double-declining methods, which are the usual choices for the books rather than the tax return.

How the three methods differ

Straight-line spreads cost minus salvage evenly, so every year has the same deduction. Double-declining balance takes a fixed fraction, 2 ÷ life, of the book value remaining at the start of each year, which front-loads the deductions; it never takes the book value below salvage, and the optional switch changes to straight-line in the first year when the straight-line amount on the remaining value is larger. MACRS replaces both calculations with the percentages printed in IRS Publication 946, Table A-1, which already include the switch to straight-line and the half-year convention. That convention treats property as placed in service in the middle of the year, so the first-year percentage is half of the full-year declining rate: 20% rather than 40% for 5-year property.

Worked example: $10,000 of equipment, $1,000 salvage, 5 years

Straight-line gives $1,800.00 each year (($10,000 − $1,000) ÷ 5), leaving a book value of $1,000.00 at the end. Double-declining balance deducts 40% of the book value each year: $4,000.00 in year 1, then $2,400.00, $1,440.00 and so on, and the schedule is stopped at the salvage value in year 5. Year 5 is limited to $296.00, the amount that brings the book value down to the salvage value; the straight-line switch changes nothing in this example. Over the first two years, straight-line deducts $3,600.00, double-declining $6,400.00, and 5-year MACRS on the full $10,000 basis (20% and 32%) deducts $5,200.00. The total over the whole life is the same for the book methods ($9,000.00), but the timing differs.

Common mistakes

Mixing the book and tax schedules is the usual one: straight-line and double-declining are accounting choices, while the return must follow MACRS (or an election the IRS allows), so the two columns will not match. Another is including land or personal-use property in the basis. The MACRS year labels are tax years in which the property is in service, not twelve-month periods from the purchase date, and the 40% mid-quarter test can move the first-year percentage from the values in Table A-1. For any filing decision use the current Publication 946 and ask a tax professional.

Estimates for planning only — not financial or tax advice. Your lender, plan or tax professional decides. How we check our calculators.

Sources: IRS Publication 946, How To Depreciate Property (straight-line method, property classes, land, Table A-1 half-year percentages). Related: capital gains tax calculator, break-even calculator and ROI calculator.