Depreciation Calculator: Straight-Line, MACRS & Double Declining Balance

What Is Depreciation?

Depreciation is the process of allocating the cost of a long-lived asset over its useful life. Instead of expensing the full purchase price in the year you buy equipment, a vehicle, or a building, you spread that cost across the periods that benefit from its use. This is the matching principlein accounting — expenses should be recognized in the same period as the revenue they help generate.

For tax purposes, depreciation creates a deduction that reduces your taxable income each year without requiring a cash outflow. According to IRS Statistics of Income data, US businesses claim hundreds of billions of dollars in depreciation deductions annually — it's one of the largest non-cash deductions available to businesses.

The 4 Main Depreciation Methods

1. Straight-Line Depreciation

The simplest method. You deduct the same amount every year over the asset's useful life.

Formula:Annual Depreciation = (Cost − Salvage Value) ÷ Useful Life

Straight-line is the GAAP standard for most assets and is preferred when an asset provides roughly equal economic benefit in each period. Think office furniture, buildings, and machinery that wears evenly.

2. Double Declining Balance (DDB)

An accelerated method that applies twice the straight-line rateto the remaining book value each year. Because you're depreciating a declining balance (not the original cost), the deduction shrinks every year.

Formula:Annual Depreciation = Book Value × (2 ÷ Useful Life)

DDB is useful for assets that depreciate fastest in their early years — vehicles, computers, and technology equipment. Most businesses switch to straight-line partway through when the straight-line deduction would be larger.

3. Sum-of-Years Digits (SYD)

Another accelerated method, but less aggressive than DDB. The deduction is based on a fraction whose numerator is the remaining useful life and denominator is the sum of all years' digits.

Formula:Annual Depreciation = (Remaining Life ÷ Sum of Years) × Depreciable Cost

For a 5-year asset, the sum of years = 1 + 2 + 3 + 4 + 5 = 15. In year 1, the fraction is 5/15; in year 2, it's 4/15; and so on.

4. MACRS (Modified Accelerated Cost Recovery System)

MACRS is the depreciation system required by the IRS for most business property placed in service after 1986. It uses predetermined recovery percentages published in IRS Rev. Proc. 87-57. MACRS does not use salvage value, and applies a half-year convention in most cases (assuming the asset was placed in service mid-year).

MACRS uses a 200% declining balance method (switching to straight-line when advantageous) for most personal property, and a 150% declining balance for certain agricultural and farming property.

Worked Example: $50,000 Equipment, $5,000 Salvage, 5-Year Life

Let's say you purchase manufacturing equipment for $50,000. The estimated salvage value is $5,000 and the useful life is 5 years. Here's how each method compares:

*DDB switches to straight-line in years 4–5 when straight-line yields a larger deduction. **DDB does not subtract salvage value from the depreciable base, so total deductions can equal full cost depending on treatment.

Notice how DDB delivers $20,000 in year 1 vs. $9,000 under straight-line. That accelerated deduction reduces taxable income faster, which is valuable when you have high income in the early years of an asset's life.

When to Use Which Method

MACRS Property Classes

Under MACRS, every asset is assigned to a recovery class. The class determines how fast you recover the cost. Here are the most common:

When in doubt about an asset's class, IRS Publication 946 contains the complete class life table. If an asset has no specified class life, it defaults to 7-year MACRS property.

Section 179: Immediate Expensing

Section 179 of the tax code allows businesses to immediately expensethe full cost of qualifying property in the year it's placed in service, bypassing multi-year depreciation entirely.

• 2024 deduction limit: $1,220,000
• Phase-out threshold: Begins at $3,050,000 of total property placed in service; dollar-for-dollar reduction above that
• Income limit: Cannot exceed your business's taxable income (but unused amounts carry forward)
• Qualifying property: Tangible personal property used more than 50% for business — equipment, machinery, vehicles, computers, off-the-shelf software

Section 179 is especially powerful for small and mid-sized businesses that need to reduce taxable income in a high-revenue year. Large corporations with billions in annual property purchases may phase out entirely.

Bonus Depreciation

Bonus depreciation (also called “additional first-year depreciation”) was set at 100% from 2017–2022 under the Tax Cuts and Jobs Act (TCJA), allowing full immediate expensing for qualifying new and used property. That percentage has been phasing down:

Unlike Section 179, bonus depreciation is not capped by business income and can create a net operating loss (NOL). It applies automatically unless you elect out. For 2024 returns, you can take 60% bonus depreciation on qualifying property in year 1, then depreciate the remaining 40% using regular MACRS.

Book Value vs. Tax Basis

These two concepts are often confused. Book value is the asset's value on your financial statements after accumulated accounting depreciation (typically straight-line under GAAP). Tax basisis the asset's value for IRS purposes after all depreciation claimed on your tax return (MACRS, Section 179, bonus depreciation).

Because MACRS is typically faster than GAAP straight-line, tax basis is usually lower than book value. A company's equipment might show $80,000 on the balance sheet (book value) but only $30,000 in tax basis — meaning future sale proceeds between those figures will trigger different tax treatment.

Depreciation Recapture

When you sell a depreciated asset for more than its current tax basis, the IRS recaptures some of the benefit you gained from prior depreciation deductions. The recaptured amount is taxed as ordinary income, not at the lower long-term capital gains rate.

Example: You bought equipment for $50,000, claimed $30,000 in MACRS depreciation, and sold it for $35,000. Your adjusted tax basis is $20,000. The $15,000 gain — up to the $30,000 of depreciation previously claimed — is depreciation recapture taxed as ordinary income under IRC § 1245. Only gains above the original cost would qualify for capital gains treatment (which almost never happens with depreciable personal property).

For real property under § 1250, only the excess of accelerated over straight-line depreciation is recaptured at ordinary rates. The rest is taxed at the 25% “unrecaptured § 1250 gain” rate.

Frequently Asked Questions

What is the straight-line depreciation formula?

The straight-line depreciation formula is: Annual Depreciation = (Cost − Salvage Value) ÷ Useful Life. For example, a $50,000 piece of equipment with a $5,000 salvage value and a 5-year useful life depreciates at ($50,000 − $5,000) ÷ 5 = $9,000 per year. Every year the same dollar amount reduces the asset's book value.

What is the difference between straight-line and double declining depreciation?

Straight-line depreciation spreads the cost evenly over the asset's life, resulting in the same deduction each year. Double declining balance (DDB) accelerates deductions by applying twice the straight-line rate to the remaining book value each year. DDB front-loads depreciation — the deduction is largest in year 1 and decreases every subsequent year. DDB is typically used for assets like vehicles and computers that lose value fastest early in their life.

What is MACRS depreciation?

MACRS (Modified Accelerated Cost Recovery System) is the depreciation method required by the IRS for most business property placed in service after 1986. MACRS assigns assets to specific property classes (3-year, 5-year, 7-year, 15-year, 27.5-year, 39-year, etc.) and uses predetermined recovery percentages that front-load deductions. MACRS does not use salvage value and applies a half-year convention in most cases.

What is Section 179 expensing?

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment or software in the year it is placed in service, rather than depreciating it over several years. For 2024, the deduction limit is $1,220,000, with a phase-out beginning at $3,050,000 of total property placed in service. The deduction cannot exceed your business taxable income for the year.

What is depreciation recapture?

Depreciation recapture occurs when you sell a depreciated asset for more than its current book value (tax basis). The portion of the gain equal to the depreciation previously claimed is taxed as ordinary income — not at the lower capital gains rate — under IRC §1245 for personal property and §1250 for real property. For example, if you bought equipment for $50,000, depreciated it down to $20,000, and sold it for $35,000, the $15,000 gain up to the depreciation taken is recaptured as ordinary income.