Straight-line depreciation spreads an asset's cost evenly over its useful life, declining balance front-loads the expense into the early years, and MACRS is the specific schedule the IRS requires you to use on a US tax return. All three split the same total cost across the years an asset is used; they only disagree on the timing of the expense.
This guide runs one asset through every method so you can see exactly how the numbers differ and pick the right one for accounting books versus your tax return. Our Depreciation Calculator uses the straight-line method, which is the simplest and the most common starting point.
The one asset we will use for every method
To compare methods fairly, we hold the inputs constant. Here is the asset:
- Cost: $30,000
- Salvage value (estimated value at the end): $5,000
- Useful life: 5 years
The depreciable base -- the total you can write off -- is cost minus salvage, or $30,000 - $5,000 = $25,000. Straight-line, declining balance, and units-of-production all write off this same $25,000; they just slice it up differently. (MACRS is the exception, and we will see why below.)
Method 1: Straight-line (even, simple, the default)
Straight-line depreciation = (cost - salvage) / useful life. For our asset that is $25,000 / 5 = $5,000 per year, or about $416.67 per month. The expense is identical every year, which makes budgeting and forecasting easy.
| Year | Depreciation | Book value (end of year) |
|---|---|---|
| 1 | $5,000.00 | $25,000.00 |
| 2 | $5,000.00 | $20,000.00 |
| 3 | $5,000.00 | $15,000.00 |
| 4 | $5,000.00 | $10,000.00 |
| 5 | $5,000.00 | $5,000.00 |
Book value is what the asset is carried at on the balance sheet: cost minus all depreciation taken so far. Notice it lands exactly on the $5,000 salvage estimate at the end of year 5 -- that is by design.
Method 2: Double-declining balance (front-loaded)
Declining balance applies a fixed percentage to the remaining book value each year, so the dollar expense shrinks over time. The popular version is double-declining balance (DDB), which uses twice the straight-line rate. With a 5-year life, the straight-line rate is 1/5 = 20%, so the DDB rate is 40%.
One key quirk: DDB ignores salvage value in the formula but you can never depreciate below salvage, so the last years get capped at the salvage floor.
| Year | Calculation | Depreciation | Book value |
|---|---|---|---|
| 1 | 40% of $30,000 | $12,000.00 | $18,000.00 |
| 2 | 40% of $18,000 | $7,200.00 | $10,800.00 |
| 3 | 40% of $10,800 | $4,320.00 | $6,480.00 |
| 4 | capped at salvage floor | $1,480.00 | $5,000.00 |
| 5 | already at salvage | $0.00 | $5,000.00 |
The total written off is still $25,000 -- the same as straight-line -- but $12,000 of it hits in year 1 instead of $5,000. Businesses pick declining balance for assets that lose usefulness fastest early on (computers, vehicles) or simply to match the heavier wear in the first years.
Method 3: Units of production (tied to usage)
Units of production ignores time entirely and depreciates based on how much the asset is actually used. You divide the depreciable base by the total units the asset is expected to produce over its life, then multiply by units used each year.
Say our $30,000 machine is expected to produce 100,000 units over its life. The rate is $25,000 / 100,000 = $0.25 per unit.
| Year | Units produced | Depreciation ($0.25/unit) | Book value |
|---|---|---|---|
| 1 | 30,000 | $7,500.00 | $22,500.00 |
| 2 | 25,000 | $6,250.00 | $16,250.00 |
| 3 | 20,000 | $5,000.00 | $11,250.00 |
| 4 | 15,000 | $3,750.00 | $7,500.00 |
| 5 | 10,000 | $2,500.00 | $5,000.00 |
Again the total is $25,000, and book value ends at the $5,000 salvage. This method is ideal for manufacturing equipment or vehicles measured in miles, where the expense should rise and fall with actual output.
Method 4: MACRS (what the IRS actually requires)
For US federal income tax, you generally must use the Modified Accelerated Cost Recovery System (MACRS) -- not the method on your books. MACRS is different in two important ways:
- It ignores salvage value. You depreciate the full $30,000 down to zero, not the $25,000 depreciable base.
- It uses fixed IRS percentage tables tied to an asset class, and most assets use a half-year convention that spreads a 5-year asset across 6 calendar years.
Here is the standard 5-year MACRS table (200% declining balance with half-year convention) applied to our $30,000 cost:
| Year | MACRS rate | Depreciation | Book value |
|---|---|---|---|
| 1 | 20.00% | $6,000.00 | $24,000.00 |
| 2 | 32.00% | $9,600.00 | $14,400.00 |
| 3 | 19.20% | $5,760.00 | $8,640.00 |
| 4 | 11.52% | $3,456.00 | $5,184.00 |
| 5 | 11.52% | $3,456.00 | $1,728.00 |
| 6 | 5.76% | $1,728.00 | $0.00 |
Total written off: the full $30,000. This is the official method -- always confirm an asset's class life and the current rules in the IRS Publication 946, How To Depreciate Property.
Side-by-side: the same asset, four answers in year 1
The total expense is similar across methods (MACRS recovers a bit more because it skips salvage), but the timing is dramatically different:
| Method | Year 1 expense | Total over life | Best for |
|---|---|---|---|
| Straight-line | $5,000.00 | $25,000 | Simple, even reporting |
| Double-declining | $12,000.00 | $25,000 | Fast early wear |
| Units of production | $7,500.00 | $25,000 | Usage-driven assets |
| MACRS (tax) | $6,000.00 | $30,000 | US tax returns |
Section 179 and bonus depreciation: skip the schedule entirely
Section 179 and bonus depreciation let a business deduct much or all of an asset's cost in the first year instead of spreading it out at all. Section 179 lets you elect to expense qualifying purchases up to an annual dollar cap; bonus depreciation applies an additional first-year percentage to eligible property. Both are accelerated tax write-offs -- the polar opposite of straight-line's even spread.
The trade-off: a big deduction now means a smaller (or zero) deduction in later years, since you cannot deduct the same dollar twice. The annual limits and bonus percentage change with tax law, so verify the current figures before relying on them. These are tax elections, not book methods -- your financial statements may still use straight-line even when your tax return uses Section 179.
Why this is not the same as a car losing resale value
Accounting depreciation is a planned allocation of cost, not a measurement of market price. When people say a new car "loses 20% the moment you drive off the lot," they mean its resale value dropped. Book value, by contrast, follows a formula you chose on day one and may have nothing to do with what the asset would sell for today.
In our straight-line example the book value is $15,000 after 3 years -- but the machine might fetch $9,000 or $22,000 on the open market. The purpose is different: accounting depreciation exists to match the expense of an asset to the revenue it helps generate, spreading a large purchase across the years it earns its keep rather than dumping the whole cost into one year's profit.
Which method should you use?
- For internal books and simple reporting: straight-line. It is transparent and easy to defend.
- For assets that wear fast early: double-declining balance.
- For usage-driven equipment: units of production.
- For your US tax return: MACRS, unless you elect Section 179 or bonus depreciation.
Start by modeling the even, straight-line picture in the Depreciation Calculator. If you are also weighing the asset as an investment, the ROI Calculator and Break-Even Calculator show whether it pays for itself, and the Profit Margin Calculator shows how the depreciation expense flows into your bottom line.
Try it yourself
See the full straight-line schedule and book value for your own asset -- instant, private, no sign-up.
Open the Depreciation Calculator →Try it yourself
Run your own numbers in the free Depreciation Calculator — instant, private, no sign-up.
Open the Depreciation Calculator →Frequently asked questions
- What is the difference between straight-line and declining balance depreciation?
- Straight-line spreads the cost evenly while declining balance front-loads it into the early years. On a $30,000 asset with $5,000 salvage and a 5-year life, straight-line deducts $5,000 every year. Double-declining balance deducts $12,000 in year 1 and shrinks from there. Both write off the same $25,000 total -- only the timing differs.
- Which depreciation method does the IRS require?
- The IRS generally requires MACRS (the Modified Accelerated Cost Recovery System) for property placed in service on a US tax return. MACRS ignores salvage value and uses fixed percentage tables tied to an asset class, so a 5-year asset is recovered over six calendar years under the half-year convention. Your accounting books can still use straight-line even when your tax return uses MACRS.
- Does the total depreciation differ between methods?
- No for book methods, mostly yes for MACRS. Straight-line, declining balance, and units of production all write off the same depreciable base -- cost minus salvage. On our example that is $25,000 regardless of method. MACRS is the exception because it ignores salvage and depreciates the full $30,000 cost down to zero.
- What is salvage value and does every method use it?
- Salvage value is the estimated worth of an asset at the end of its useful life, and most methods subtract it before depreciating. Straight-line and units of production subtract salvage from cost to get the depreciable base. Declining balance ignores it in the formula but stops once book value hits the salvage floor. MACRS ignores salvage entirely.
- How is Section 179 different from straight-line depreciation?
- Section 179 lets you deduct the cost of a qualifying asset in the first year instead of spreading it over its useful life. Straight-line writes off an equal amount each year; Section 179 is an accelerated tax election that front-loads the deduction up to an annual cap. Because you cannot deduct the same dollar twice, a large first-year write-off means little or no deduction in later years.
- Is accounting depreciation the same as a car losing resale value?
- No. Accounting depreciation is a planned allocation of an asset's cost over time, while resale depreciation is the drop in market price. Book value follows the formula you chose on day one and can differ sharply from what the asset would sell for. The accounting purpose is to match expense to the revenue the asset helps generate, not to track market value.
Related guides
How to calculate CAGR: formula, Excel method, and worked examples · How to calculate unit price: the simple way to find the best deal · How to Use Reverse CAGR to Project Future Value · CAGR vs Average Annual Return: What's the Difference?