Depreciation methods, in short
Every method deducts the exact same total over an asset's life — cost minus salvage value — they just disagree on timing. A $50,000 asset with $5,000 salvage over 5 years deducts a flat $9,000 a year under straight-line, but $20,000 in year one alone under double declining balance, tapering down from there. Same $45,000 total, very different cash flow and tax timing.
Key takeaways
- Straight-line on a $50,000 asset with $5,000 salvage over 5 years: a flat $9,000 deduction every year.
- Double declining balance on the same asset: $20,000 in year one — more than double straight-line's rate — tapering to $12,000, $7,200, $4,320, and $1,480, landing at the same $5,000 ending book value.
- Sum-of-years digits splits the difference: $15,000 in year one down to $3,000 in year five, also ending at $5,000.
- All three methods total the exact same $45,000 in depreciation over 5 years — the only difference is which years get the bigger deductions.
Same total deduction, different timing
Run a $50,000 asset with a $5,000 salvage value over a 5-year life through three methods and watch the year-one deduction alone:
Straight-line: $9,000 (same every year)
Sum-of-years digits: $15,000 (declining each year)
Double declining balance: $20,000 (declining fastest)
All three still total $45,000 in depreciation by the end of year five — the difference is entirely about when the deduction lands, which matters for tax planning (front-loading deductions can lower taxable income sooner) and for how book value looks on financial statements over time.
How straight-line depreciation works
The simplest method, and the default here:
Annual depreciation = (Cost − Salvage Value) ÷ Useful Life
= ($50,000 − $5,000) ÷ 5 = $9,000/year
Book value drops by exactly $9,000 a year — $50,000, $41,000, $32,000, $23,000, $14,000, $5,000 — landing precisely on salvage value at the end of year five. It's predictable and easy to audit, which is why it's the default choice for financial reporting even when a business uses an accelerated method for tax purposes.
How double declining balance front-loads deductions
Double declining balance applies a fixed rate — 2 ÷ useful life, or 40% on a 5-year asset — to whatever the book value happens to be that year, not to the original cost. That's why the dollar amount shrinks every year even though the rate stays constant: 40% of $50,000 is $20,000, but 40% of the resulting $30,000 is only $12,000, and so on. The calculator also enforces a floor — depreciation stops the moment book value would drop below salvage value, which is why year five's deduction here is a smaller $1,480 instead of the full 40% rate, just enough to land exactly on the $5,000 salvage value.
MACRS: the method the IRS actually requires
For US federal tax purposes, most business assets don't get a choice — MACRS (Modified Accelerated Cost Recovery System) is the required method, and it works differently from the others here in one key way: it ignores salvage value entirely and assigns assets to fixed class lives (3, 5, 7, 10, or 15 years) with IRS-published percentage tables for each year. The straight-line, declining balance, and sum-of-years methods in this calculator are more common for internal financial reporting and non-US contexts; treat MACRS results as a planning estimate and confirm the exact schedule with a tax professional or current IRS tables before filing.