This calculator uses the declining-balance method, also called reducing balance. Each year, the asset loses the same percentage of the value it still has. So the yearly write-off shrinks, and the book value never quite reaches zero.
The IRS method for business equipment starts from the same idea, then adds rules of its own.
One rate, a smaller base every year
Book value is the cost minus all the depreciation recorded so far. Enter the cost, the yearly rate and the years. You get back the book value left and the total written off.
Take $50,000 of equipment at 40% a year. Year one writes off $20,000. Year two takes 40% of the remaining $30,000, which is $12,000. Each bite is smaller because the base keeps shrinking.
Book value of $50,000 of equipment at 40% a year
Value left at the end of each year, declining-balance method
After five years, $3,888 is still on the books. Straight-line depreciation over the same five years would take $10,000 a year and end at zero. A fixed share of a positive number always leaves something behind.
Picking the rate from the asset's life
If you know the asset's life, borrow the rule from the IRS instructions for Form 4562. For the 200% declining-balance method, divide 2.00 by the number of years. For the 150% method, divide 1.50 instead.
So a five-year life gives 40%, and a ten-year life gives 20%. Here's $10,000 run at each rate for its full life:
| Life and method | Rate entered | Years | Book value left | Written off |
|---|---|---|---|---|
| 5 years, straight-line rate by mistake | 20% | 5 | $3,277 | $6,723 |
| 5 years, 200% method | 40% | 5 | $778 | $9,222 |
| 7 years, 200% method | 28.57% | 7 | $949 | $9,051 |
| 10 years, 200% method | 20% | 10 | $1,074 | $8,926 |
| 15 years, 150% method | 10% | 15 | $2,059 | $7,941 |
| 20 years, 150% method | 7.5% | 20 | $2,103 | $7,897 |
The first row is an easy slip. One-fifth, or 20%, is the straight-line rate for five years, not the declining-balance rate. Enter it here and about a third of the cost is still there after year five.
The other rows show the method's weak spot. Even at the right rate, 8% to 21% of the cost is left when the life ends.
How the IRS clears the remainder
For most business property, the IRS requires MACRS, the Modified Accelerated Cost Recovery System. The 2025 instructions for Form 4562 set the method by property class:
- 3-, 5-, 7- and 10-year property: 200% declining balance, switching to straight line once the straight-line rate is higher. Cars, light trucks and copiers are 5-year property. Office furniture is 7-year property.
- 15- and 20-year property: 150% declining balance, with the same switch.
- Buildings: straight line only, over 27.5 years for residential rentals and 39 years for nonresidential real property.
The switch is what clears the leftover. The straight-line rate divides what's left by the years left, so the final year takes the rest.
Land stays out of it altogether. Publication 946 says you can't depreciate land because it doesn't wear out, become obsolete or get used up.
Where the calculator and your tax return part ways
Three things keep the calculator from matching a MACRS deduction:
- The first year. The half-year convention treats all property placed in service during a year as placed in service at its midpoint. The IRS computation multiplies year one by 0.5, so 5-year property gets 20%, not 40%.
- The ending. MACRS switches to straight line and recovers the full cost. The calculator applies the same rate forever.
- Late-year purchases. Say more than 40% of the year's depreciable basis goes into service in the last three months. Then a mid-quarter convention generally applies instead.
Treat the $50,000 of equipment as 5-year property: year one comes to $10,000 under MACRS against $20,000 here. Use the calculator for planning and book estimates, and Form 4562 for the return itself.
Writing off the whole cost in year one
For taxes, a business may not need a schedule at all. IRS Publication 946 puts the maximum section 179 deduction at $2,500,000 for tax years beginning in 2025. The cap shrinks dollar for dollar once the cost of section 179 property placed in service that year passes $4,000,000.
For tax years beginning in 2026, Revenue Procedure 2025-32 raises the two figures to $2,560,000 and $4,090,000.
Separately, the One Big Beautiful Bill Act reinstated a 100% special depreciation allowance. It covers certain qualified property acquired and placed in service after January 19, 2025. When either break applies, the tax deduction can be the full cost at once. The schedule here then tracks book value, not your deduction.
What you can depreciate, and when it starts
Publication 946 gives buildings, machinery, vehicles, furniture and equipment as examples. To be depreciable, property must meet all four of its tests:
- it's property you own;
- you use it in your business or an income-producing activity;
- it has a determinable useful life;
- it's expected to last more than one year.
Depreciation begins when you place the property in service for business or income-producing use. It stops when you've fully recovered the cost or retired the asset, whichever comes first.
Book value isn't a price tag
Book value is an accounting figure, not what a buyer would pay. For a vehicle, the car depreciation calculator runs the same declining-balance math on a car's price.
Want a schedule that ends at a salvage value? This tool has no salvage input. The accumulated depreciation calculator spreads cost minus salvage evenly over the life. For things that gain value, the appreciation calculator runs the same compounding upward.