Straight-line depreciation formula (with the “why”)

Depreciation is the accounting idea that long-term assets (equipment, vehicles, machinery, computers, furniture, etc.) lose value over time. If you buy a laptop for your business, you don’t usually treat the entire cost as an expense on day one. Instead, you spread the cost across the years you expect to use it. That “spreading” is depreciation.

Straight-line depreciation is the simplest method because it assumes the asset loses the same amount of value each year. In other words, the depreciation expense is constant. That makes planning easy, schedules clean, and explanations painless—exactly why it’s the go-to method for many businesses and for learning the basics of depreciation.

• Depreciable base = Cost − Salvage
• Annual depreciation = (Cost − Salvage) ÷ Useful life (years)

Here’s what each term means in normal human language:

The cost is what you paid to get the asset ready to use. In accounting language, this is often called the asset’s basis. It can include the purchase price plus other necessary costs like shipping, installation, and setup fees—basically anything required to put the asset into service. (For personal use, most people just use the sticker price.)

The salvage value is what you expect the asset will be worth at the end of its useful life. Think of it as the “floor” you don’t depreciate past. If you buy a work vehicle for $30,000 and you think you can sell it for $6,000 after 5 years, then $6,000 is the salvage value. Depreciation stops when the book value reaches this amount.

The useful life is how long you expect the asset to be productive. In business settings, this is often guided by company policy, accounting standards, or tax rules (which can differ). In personal planning, it can be as simple as “How many years until I replace this?”

Straight-line is basically: “Take the amount you expect to lose, then divide it evenly across time.” The amount you expect to lose is the depreciable base (Cost − Salvage). Then you divide by useful life to get a consistent annual expense. If you prefer monthly tracking, just divide the annual depreciation by 12.

People often want a rate instead of a dollar amount. A simple straight-line rate is:

• Rate = Annual depreciation ÷ Cost

Multiply that by 100 to get a percentage. Example: if annual depreciation is $2,000 and the cost is $10,000, the rate is 20% per year. Note: some textbooks define the rate using the depreciable base instead of cost; the rate you use depends on context. This calculator shows the rate based on cost because it’s intuitive for “how fast does it drop versus what I paid?”

Straight-line depreciation is clean, but real-world value doesn’t always drop perfectly evenly. Cars often lose more value early on, while some equipment holds value surprisingly well. Depreciation is primarily an accounting convention. Your market value might behave differently, but straight-line is still useful because it’s easy to communicate and easy to forecast.

Step-by-step examples you can copy

Suppose you buy a laptop for $2,400. You expect it will be worth $300 after 3 years.

• Depreciable base = 2,400 − 300 = $2,100
• Annual depreciation = 2,100 ÷ 3 = $700 per year
• Monthly depreciation = 700 ÷ 12 ≈ $58.33 per month

The schedule will show book value dropping by $700 each year until it reaches $300 at the end of year 3.

You purchase a vehicle for $32,000, estimate salvage value $8,000, and useful life 5 years.

• Depreciable base = 32,000 − 8,000 = $24,000
• Annual depreciation = 24,000 ÷ 5 = $4,800 per year
• Monthly depreciation = 4,800 ÷ 12 = $400 per month
• Depreciation rate (vs cost) = 4,800 ÷ 32,000 = 15% per year

If you’re doing simple internal budgeting, that $400/month is a great “replacement reserve” number: set it aside and you’ll have a meaningful chunk saved by the time you’re ready for a new vehicle.

Let’s say a machine costs $10,000, salvage is $1,000, life is 6 years. Annual depreciation is (10,000 − 1,000) ÷ 6 = $1,500 per year.

After 4 years, accumulated depreciation is 4 × 1,500 = $6,000. Book value after 4 years is 10,000 − 6,000 = $4,000. That’s the accounting book value (not necessarily resale market value), but it’s still a useful benchmark.

If salvage value is zero, the formula becomes Cost ÷ Life. That’s common for items that are used until they’re essentially worthless, or for simplified planning. If a $1,200 phone is replaced every 3 years, straight-line gives $400 per year.

What this calculator is doing behind the scenes

When you press Calculate Depreciation, the calculator performs four simple steps:

• Step 1: Validate inputs (numbers must be positive; salvage can’t exceed cost; useful life must be greater than zero).
• Step 2: Compute depreciable base = Cost − Salvage.
• Step 3: Compute annual depreciation = (Cost − Salvage) ÷ Life; monthly = annual ÷ 12; daily ≈ annual ÷ 365.
• Step 4: Build a schedule: each year reduces book value by the annual depreciation until it reaches salvage value.

You’ll see a year-by-year table with: Beginning book value (what it’s “worth” in the books at the start of the year), Depreciation expense (the straight-line amount), Accumulated depreciation (how much has been depreciated total), and Ending book value (beginning minus that year’s depreciation).

One important detail: sometimes the math doesn’t divide nicely into whole cents. This calculator uses normal rounding for display, but internally it keeps enough precision so the last year will land exactly at salvage value (it adjusts the final year by a tiny amount if needed). That prevents the common “oops, we went below salvage” issue.

This is one of those calculators people love to share when it answers a question quickly: “How much does my car lose each year?”, “How much of my equipment cost is ‘used up’ annually?”, or “What should I budget monthly?” If you’re posting on social, try sharing a screenshot of the schedule with a caption like: “My laptop costs me $58.33/month… I’m coping.” 😄

Frequently Asked Questions

• What is straight-line depreciation?

  Straight-line depreciation is a method that allocates the same depreciation expense each year over an asset’s useful life. It’s the simplest depreciation method and is widely used in financial reporting and in educational examples.

• What’s the difference between “book value” and “market value”?

  Book value is the accounting value: cost minus accumulated depreciation. Market value is what you could actually sell it for today. They can be very different—especially for vehicles and electronics—so use book value for accounting and market value for resale decisions.

• Can salvage value be higher than cost?

  In normal depreciation schedules, no. Salvage is the expected value at the end, so it’s typically lower than cost. This calculator will flag salvage values above cost as an input error.

• Does this include partial-year (proration) depreciation?

  This calculator shows a standard full-year schedule. Many tax systems have specific conventions for partial-year depreciation (mid-month, mid-quarter, etc.). If you need those rules, use a tax-specific calculator or confirm with a tax professional.

• Why does the last year sometimes look slightly different?

  Because of rounding. If annual depreciation is a repeating decimal (like $58.3333...), the displayed cents can accumulate rounding error. This calculator adjusts the final year by a tiny amount so the ending book value equals salvage value exactly.

• Is straight-line depreciation always the “best” method?

  Not always. Some assets lose value faster at the beginning (accelerated methods), while others are better matched with usage-based methods. Straight-line is best when you want simplicity, consistency, and easy planning.

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