Depreciation Calculator and Schedule

Depreciation spreads the cost of something you will use for years across the years you use it, so the expense lands in the periods that get the benefit rather than all at once in the month you paid.

Two separate schedules usually exist for the same asset: a book schedule that follows your accounting policy and shows up in your financial statements, and a tax schedule that follows the rules the IRS sets and shows up on your return. They rarely match, and they are not supposed to. The gap between them is a deferred tax item, not an error.

Straight line

The same expense every full year.

Annual depreciation = (Cost basis - Salvage value) / Useful life

A $45,000 van with a $5,000 salvage value over five years depreciates $8,000 a year. Straight line is the default book method for most companies because it is simple to defend and simple to audit.

Declining balance

Front-loads the expense, which better matches assets that lose most of their value early. The rate is a multiple of the straight-line rate applied to book value, not to cost, so the expense shrinks every year.

Rate = Multiple / Useful life (200% over 5 years = 40%) Year expense = Beginning book value x Rate

Two rules keep it honest. Salvage value is not subtracted up front, but depreciation stops once book value reaches salvage. And because a declining balance never actually reaches zero, the schedule switches to straight line for the remaining book value over the remaining life in the first year that straight line gives the larger deduction. This calculator makes that switch automatically, which is what MACRS does too.

Sum of the years' digits

Another front-loaded book method, less common now but still in use.

Year n expense = (Cost - Salvage) x (Remaining life / Sum of the years' digits) Sum for a 5-year life = 5+4+3+2+1 = 15, so year one takes 5/15

MACRS, the US tax method

For a federal return you do not choose a method or a life freely. The Modified Accelerated Cost Recovery System assigns your asset a property class, and the class fixes the recovery period, the method and the convention (IRS Publication 946). Most business equipment lands in the 5-year or 7-year class and uses 200% declining balance with a switch to straight line. Land improvements and similar 15 and 20-year property use 150% declining balance.

The conventions are what surprise people. Under the half-year convention, every asset is treated as if you placed it in service exactly halfway through the year no matter which month you actually did, so year one gets half a year of depreciation and the schedule runs one year longer than the recovery period. If more than 40% of everything you placed in service that year landed in the fourth quarter, the mid-quarter convention replaces it instead. That test looks at all your assets together, not at the one in front of you, which is why this calculator does not decide it for you.

Book value is what is left after depreciation, and it is the number that matters when you sell the asset. Sell above book value and you have a gain, and on a tax schedule some of that gain gets recaptured as ordinary income rather than treated as a capital gain.

A $45,000 delivery van, no salvage value for tax, 5-year MACRS property under the half-year convention.

Three things worth noticing. The month does not matter. The half-year convention gives the same year-one deduction whether you placed the asset in service in January or in November, which is exactly why the mid-quarter test exists. Year two is the biggest year, not year one, because year one is halved. And the schedule spans six tax years for five-year property, which is the most common surprise on a first fixed-asset schedule.

The same van on the books, straight line over five years with a $5,000 salvage value, depreciates $8,000 a year. Book and tax differ by $1,000 in year one on one van. Across a register, that difference is the deferred tax entry.

This handles one asset at a time. It does not maintain a register, and it does not compute Section 179 or bonus depreciation elections, gain, loss or depreciation recapture on a sale, partial-year disposals, listed-property limits, the passenger-auto depreciation caps, or state schedules where the state has decoupled from federal bonus depreciation. It covers the 3, 5, 7, 10 and 15-year GDS classes under the half-year convention; it does not cover 20-year property, the mid-quarter convention, or real property on the mid-month convention.

It also cannot run the mid-quarter test for you, because that test depends on every asset you placed in service during the year.

This calculator is an estimate for planning, not tax advice. It assumes the inputs you entered are complete and does not know your full facts. Confirm your numbers with a qualified tax professional before you file.