To calculate straight-line depreciation, subtract the salvage value from the asset’s cost, then divide that amount by the number of years of useful life.
TL;DR: Annual depreciation = (cost − salvage) ÷ useful life. A $50,000 asset with $5,000 salvage over 10 years depreciates $4,500 a year. Try the depreciation calculator.
The straight-line formula
Straight-line depreciation spreads the cost of an asset evenly across its life. Take a machine that costs $50,000, has a salvage value of $5,000, and a useful life of 10 years.
($50,000 − $5,000) ÷ 10 = $45,000 ÷ 10 = $4,500 per year
You record $4,500 of depreciation expense every year for 10 years. The salvage value of $5,000 is left out of the math because you expect to recover that amount, so it is not used up.
Book value over time
Book value is what the asset is worth on paper at any point. It starts at the full cost and drops by the annual depreciation each year.
- Year 0: $50,000
- Year 1: $50,000 − $4,500 = $45,500
- Year 2: $45,500 − $4,500 = $41,000
After 10 years, book value reaches the $5,000 salvage value and stays there. The depreciation calculator builds this full schedule for you.
Double declining balance
Double declining balance is an accelerated method that records more expense in the early years. The rate is 200% of the straight-line rate. With a 10-year life, the straight-line rate is 10% a year, so the double declining rate is 20%.
Year 1 on the $50,000 machine: $50,000 × 20% = $10,000. Year 2: the remaining $40,000 × 20% = $8,000. The expense shrinks each year as the balance falls. This front-loading suits assets that lose value fast early on.
These are book and educational figures, not US tax MACRS depreciation. For tax filing, consult an accountant.