How does an asset's value depreciate over its useful life?

Straight-line vs. declining balance depreciation — what's the difference?

Straight-line depreciation spreads the exact same dollar amount evenly across every year of an asset's useful life — simple and predictable. Double-declining balance is an accelerated method that applies a fixed rate (double the straight-line rate) to the asset's shrinking book value each year, so it depreciates a much larger share early on and a smaller share later, tapering off but never dropping the book value below salvage value.

Why would a business choose accelerated depreciation?

Accelerated methods like double-declining balance produce larger depreciation deductions in the earlier years of an asset's life, which can improve near-term cash flow by lowering taxable income sooner rather than later. This is a general accounting note, not tax advice — consult a tax professional about which method actually applies to your specific asset and situation.

What is salvage value?

Salvage value, also called residual value, is the estimated worth of an asset at the end of its useful life — roughly what you could sell it for once it's been fully depreciated for accounting purposes. Total depreciation taken over an asset's life always equals its original cost minus this salvage value, regardless of which method spreads that amount out differently over time.

Does this apply to real estate?

Not directly — real property depreciation for US tax purposes uses IRS-mandated recovery periods, commonly 27.5 years for residential rental property and 39 years for commercial property, under specific methods set by tax law rather than a simple straight-line or declining-balance choice. This calculator is a general illustration of the underlying depreciation concept, not tax software, so don't use it for an actual real estate tax filing.

Worked example: a $50,000 asset with a $5,000 salvage value and a 5-year useful life depreciates $45,000 in total either way. Straight-line spreads that evenly at $9,000 a year. Double-declining balance (rate = 2 ÷ 5 = 40% of book value each year) depreciates $20,000 in year 1, $12,000 in year 2, $7,200 in year 3, $4,320 in year 4, and a final $1,480 in year 5 — capped so book value lands exactly at the $5,000 salvage floor rather than continuing below it.