Find straight-line depreciation — the annual expense and the book value of an asset after any number of years.
Straight-line spreads cost evenly over the asset's life. Tax depreciation (MACRS, Section 179, bonus) works differently — check current IRS rules. General information, not tax advice.
The simplest method: spread an asset's cost, minus its salvage value, evenly across its useful life. Each year's expense is the same, and book value drops in a straight line to the salvage value.
Annual depreciation = (cost − salvage) ÷ useful life
Depreciation is not a valuation and it is not cash leaving your bank account. It is an accounting device for spreading a cost you have already paid across the years the asset earns its keep, so that a $20,000 van bought in January does not make January look catastrophic and the following four years look better than they were. The straight-line method makes the simplest possible assumption: the asset gives up the same amount of usefulness every year of its life.
What it ignores is most of what determines an asset's real worth. It knows nothing about how hard you worked the asset, what the used market is doing, whether a newer model halved its resale value, or whether it broke in year three. A vehicle loses a large share of its value the moment it leaves the lot; straight-line pretends that drop is spread evenly over five years. Both numbers are defensible for their own purposes — one for your books, one for a sale — and confusing them is the root of most depreciation arguments.
Cost $20,000, salvage value $2,000, useful life 5 years. The depreciable base is the part of the cost you actually expect to consume: $20,000 − $2,000 = $18,000. Spread evenly, that is $18,000 ÷ 5 = $3,600 a year, or $300 a month if you post monthly.
Ask for the book value after year 2 and the accumulated depreciation is 2 × $3,600 = $7,200, so book value is $20,000 − $7,200 = $12,800. Carry it all the way out and the schedule reads $16,400 at the end of year 1, $12,800 at year 2, $9,200 at year 3, $5,600 at year 4, and $2,000 at year 5 — the salvage value, which is the floor. It stops there by design. Set salvage to zero instead and the annual charge rises to $20,000 ÷ 5 = $4,000, which is why the salvage estimate is not a cosmetic input.
As a rule of thumb, straight-line is the right method when an asset is used fairly evenly — office furniture, a building fit-out, a laptop — and a poor fit when usage is lumpy. For a machine whose life is genuinely measured in output rather than years, a units-of-production method tracks reality better. Useful life is an estimate you are asked to make in good faith, not a number handed down: common conventions run roughly 3–5 years for computer equipment, 5–7 for vehicles and machinery, and much longer for buildings, but they vary by industry and by what you can justify.
The part that catches people out: this is your book number, not your tax number. US tax depreciation runs on MACRS schedules, with Section 179 and bonus depreciation letting you expense far more of an asset up front, and those rules change. Treat the figure on this page as what your accounts should show, and check current IRS rules — or ask your accountant — for what your return should show. This is general information, not tax advice.
One asset is arithmetic. A business with a van, two laptops, a trailer and a fit-out has a fixed-asset register: purchase dates, costs, salvage estimates, lives, accumulated depreciation to date and book value, all of which have to roll forward every year and reconcile to the balance sheet. That is a spreadsheet job. Our small business bookkeeping template keeps the asset and expense side in one place so the depreciation charge lands in the accounts rather than on a sticky note. For the profitability side of the same purchase, the ROI calculator answers whether the asset earned back what it cost.
Not necessarily. Books often use straight-line, but US tax uses MACRS schedules (plus Section 179 and bonus depreciation). Confirm the method for your purpose.
The estimated worth of the asset at the end of its useful life — what you could sell it for. It's the floor book value never drops below.
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