Straight-line depreciation equals (cost minus salvage value) divided by useful life. For a $12,000 asset with a $2,000 salvage value and a 5-year life, that is ($12,000 - $2,000) / 5 = $2,000 per year, or about $166.67 per month.
This guide shows you the formula by hand, the full year-by-year schedule, the exact Excel function, and the two adjustments people most often get wrong: partial first years and rounding. To check any result instantly, use the Depreciation Calculator.
The straight-line formula in plain English
Straight-line depreciation spreads an asset's cost evenly across the years you expect to use it. You need exactly three inputs:
- Cost -- what you paid, including delivery and setup needed to put it in service.
- Salvage value -- your estimate of what it will be worth at the end of its useful life.
- Useful life -- how many years you expect to use it.
The formula is:
Annual depreciation = (Cost - Salvage value) / Useful life
The numerator, cost minus salvage, is called the depreciable base -- the total amount you will write off over the asset's life. The reason businesses do this at all is to match the expense to the revenue the asset helps earn, instead of dumping a big purchase into one year's profit.
Step-by-step by hand
Using our example -- cost $12,000, salvage $2,000, life 5 years:
- Find the depreciable base: $12,000 - $2,000 = $10,000.
- Divide by useful life: $10,000 / 5 = $2,000 per year.
- Convert to monthly if needed: $2,000 / 12 = $166.67 per month.
That $2,000 is the same every year -- the defining feature of the straight-line method.
The full depreciation schedule
A schedule tracks two running numbers: accumulated depreciation (the total taken so far) and book value (cost minus accumulated depreciation). Here is the complete schedule for the example:
| Year | Depreciation | Accumulated depreciation | Book value |
|---|---|---|---|
| Start | -- | $0.00 | $12,000.00 |
| 1 | $2,000.00 | $2,000.00 | $10,000.00 |
| 2 | $2,000.00 | $4,000.00 | $8,000.00 |
| 3 | $2,000.00 | $6,000.00 | $6,000.00 |
| 4 | $2,000.00 | $8,000.00 | $4,000.00 |
| 5 | $2,000.00 | $10,000.00 | $2,000.00 |
Two sanity checks confirm you did it right: accumulated depreciation ends at the $10,000 base, and book value lands exactly on the $2,000 salvage value. If either is off, recheck your inputs.
How to do it in Excel
Excel has a built-in function for this: SLN, which stands for straight-line. The syntax is:
=SLN(cost, salvage, life)
So =SLN(12000, 2000, 5) returns 2000 -- the annual figure. You can also build the schedule manually with cell references, which makes it easy to change assumptions:
| Cell | Formula | Result |
|---|---|---|
| B1 (cost) | 12000 | $12,000 |
| B2 (salvage) | 2000 | $2,000 |
| B3 (life) | 5 | 5 |
| B4 (annual) | =(B1-B2)/B3 | $2,000 |
| B5 (monthly) | =B4/12 | $166.67 |
For book value in any year, use =B1 - B4*year. For example, the end of year 3 is =12000 - 2000*3 = $6,000, which matches the schedule above. Google Sheets uses the identical SLN function.
Handling a partial first year
Assets are rarely bought on January 1, so the first year usually gets a partial deduction. The fix is simple: multiply the annual amount by the fraction of the year the asset was in service.
Suppose you place the same asset in service on April 1. That is 9 months in year 1. The first-year depreciation is $2,000 x (9/12) = $1,500. The leftover 3 months ($500) carries into a sixth calendar year. The schedule then looks like this:
| Year | Months in service | Depreciation | Book value |
|---|---|---|---|
| 1 | 9 | $1,500.00 | $10,500.00 |
| 2 | 12 | $2,000.00 | $8,500.00 |
| 3 | 12 | $2,000.00 | $6,500.00 |
| 4 | 12 | $2,000.00 | $4,500.00 |
| 5 | 12 | $2,000.00 | $2,500.00 |
| 6 | 3 | $500.00 | $2,000.00 |
The total is still $10,000 and book value still ends at $2,000 salvage -- the 60 months of depreciation are just spread across six calendar years. Note that US tax rules use formal conventions (such as the half-year or mid-month convention) instead of exact months; the prorating shown here is the general accounting logic.
Handling rounding so the numbers tie out
When the depreciable base does not divide evenly, rounding each year can leave you a few cents short or over. Say an asset costs $10,000, has no salvage, and a 3-year life. The math gives $10,000 / 3 = $3,333.33 per year. Three years of $3,333.33 is only $9,999.99 -- a penny short.
The standard fix is to true up the final year: take the rounded amount for years 1 and 2 ($3,333.33 each) and make the last year whatever is left to reach the full base, which is $10,000 - $6,666.66 = $3,333.34. That forces book value to land exactly on zero.
Common mistakes to avoid
- Forgetting to subtract salvage. Dividing cost by life instead of (cost - salvage) by life overstates depreciation. In our example that would give $2,400 a year instead of $2,000.
- Using the wrong cost. Cost should include freight and installation needed to use the asset, not just the sticker price.
- Confusing book value with market value. Book value follows your formula; it is not what the asset would sell for today.
- Skipping the partial-year adjustment when the asset was placed in service mid-year.
Where straight-line fits with your other numbers
Straight-line is the easiest method to compute and the one our tool uses, but it is one piece of a bigger picture. Once you have the annual expense, the Profit Margin Calculator shows how it affects your bottom line, the Break-Even Calculator shows how much you must sell to cover it, and the ROI Calculator tells you whether the asset earns its cost back. For the official US tax treatment, see IRS Publication 946, How To Depreciate Property.
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Open the Depreciation Calculator →Frequently asked questions
- What is the formula for straight-line depreciation?
- Straight-line depreciation = (cost - salvage value) / useful life. For a $12,000 asset with a $2,000 salvage value and a 5-year life, that is ($12,000 - $2,000) / 5 = $2,000 per year. Dividing by 12 gives a monthly figure of about $166.67. The amount is identical every year, which is what makes the method straight-line.
- What Excel function calculates straight-line depreciation?
- Excel uses the SLN function with the syntax =SLN(cost, salvage, life). For example, =SLN(12000, 2000, 5) returns 2000, the annual depreciation. Google Sheets uses the same function. You can also compute it manually with =(cost - salvage) / life if you prefer cell references you can adjust.
- How do I calculate depreciation for a partial first year?
- Multiply the full annual depreciation by the fraction of the year the asset was in service. An asset placed in service on April 1 is in service 9 months, so year-one depreciation is $2,000 x (9/12) = $1,500. The remaining $500 carries into an extra calendar year, so the asset depreciates across six calendar years instead of five.
- What is book value in straight-line depreciation?
- Book value is the asset's cost minus all depreciation taken so far. For a $12,000 asset depreciating $2,000 a year, book value is $10,000 after year one, $6,000 after year three, and $2,000 -- equal to salvage -- after year five. Book value reflects your formula, not what the asset would sell for on the open market.
- Why does my depreciation total come out a penny short?
- Rounding each year can leave a small remainder when the base does not divide evenly. A $10,000 asset with no salvage over 3 years gives $3,333.33 a year, and three years of that is $9,999.99. The standard fix is to true up the final year to $3,333.34 so accumulated depreciation reaches the full $10,000 and book value lands exactly on zero.
- Do I subtract salvage value before or after dividing by life?
- Subtract salvage value first, then divide by useful life. The correct order is (cost - salvage) / life. Dividing cost by life and forgetting salvage overstates the expense -- in the $12,000 example it would give $2,400 a year instead of the correct $2,000, and book value would wrongly fall below the salvage estimate.
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