Equipment Depreciation Calculator

Frequently Asked Questions

How is equipment depreciation calculated?

Straight-line: (Cost - Salvage Value) / Useful Life. Example: $50K equipment, $5K salvage, 10 years = $4,500/year. Tax depreciation often uses MACRS (accelerated). 2025 Section 179 deduction: up to $1.16M expensed immediately. Bonus depreciation: 60% in 2025 (phasing down).

Section 179 vs bonus depreciation - which to use?

Section 179 first ($1.16M cap, must be profitable to use). Bonus depreciation (60% in 2025, no cap) for amounts over Section 179 limit or businesses with losses. Both reduce current-year taxes; straight-line spreads over useful life.

Should I lease or buy equipment?

Buy if: equipment lasts 5+ years, you have capital, want full depreciation. Lease if: technology obsolescence is fast, want flexibility, conserve capital. Operating leases are off-balance-sheet (pre-2019 rules). Calculate true cost - leasing usually 20-30% more expensive long-term.

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This calculator provides estimates for informational purposes only. Business results vary by industry, market conditions, and execution. Not a substitute for professional business consulting, accounting, or legal advice. Consult qualified professionals before making business decisions.

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How This Calculator Works

This builds a straight-line depreciation schedule: the depreciable base = purchase price − salvage value, and annual depreciation = base ÷ useful life. Each year writes off the same amount, accumulating until book value reaches the salvage estimate. The year-by-year table shows depreciation expense, accumulated depreciation, and remaining book value, plus the total deduction over the asset's life (= base, by construction). Straight-line is the simplest of the accepted methods and the one most used for book (financial-statement) reporting.

Book Depreciation vs Tax Depreciation

Critical distinction: this is book depreciation. For US taxes, the IRS mandates MACRS, which uses fixed recovery periods (5-year for computers/vehicles, 7-year for most equipment, 39-year for buildings) and accelerated rates - you typically deduct more in early years than straight-line shows. Many businesses also use Section 179 (expense up to a high annual cap immediately) or bonus depreciation to write off most of the cost in year one. Use this tool to understand the asset's economic life and financial statements; use IRS tables (or a CPA) for the actual tax return.

Choosing Useful Life and Salvage

Useful life should reflect economic reality, not the tax schedule: computers ~3–5 yrs, machinery ~7–15, vehicles ~5–8, furniture ~7–10.

Salvage value is the estimated resale/scrap value at end of life; many firms set it to $0 for simplicity, which maximizes the depreciable base.

A higher salvage estimate lowers annual depreciation expense (less to write off), raising reported profit - a real lever, so estimate it honestly.

Land is never depreciated; separate it from a building's cost.

Why Straight-Line vs Accelerated Matters

The total deduction is identical across methods - only the timing differs. Accelerated methods (MACRS, declining balance) front-load deductions, deferring tax and improving early cash flow and NPV, which is usually preferable. Straight-line spreads expense evenly, smoothing reported earnings - often chosen for investor-facing financials. The right choice depends on whether you're optimizing for tax cash flow (accelerate) or stable book earnings (straight-line); profitable firms generally accelerate for tax, low-income years sometimes prefer the opposite.

Common Mistakes

Using book straight-line numbers on the tax return instead of MACRS/Section 179 - leaves money on the table or misstates taxes.

Ignoring depreciation recapture: selling a depreciated asset above book value triggers ordinary-income tax on the gain.

Depreciating land, or failing to split land from building cost.

Setting salvage to zero when meaningful resale value exists - overstates expense and understates profit.

Equipment Depreciation Calculator

Frequently Asked Questions

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