When a business buys a long-lived asset such as a delivery van, a piece of factory machinery, or office furniture, the purchase price is not treated as a one-time expense. Instead, accountants spread that cost over the years the asset is expected to be useful. The simplest and most widely used way to do that is the straight line method, and this straight line depreciation calculator does the arithmetic for you in seconds: enter the asset cost, its estimated salvage value, and its useful life, and you get the annual and monthly depreciation expense plus a complete year-by-year schedule of book values.
What Is Straight Line Depreciation?
Straight line depreciation is a method of allocating the cost of a tangible asset evenly across each year of its useful life. "Straight line" refers to the shape of the book-value curve over time: if you plotted the asset's carrying value on a graph, it would fall in a perfectly straight line from the purchase price down to the salvage value. Unlike accelerated methods that front-load the expense, the straight line method charges exactly the same depreciation expense every single year.
Businesses favor this method for three reasons. First, it is easy to compute and audit. Second, it matches expenses to revenues reasonably well for assets that deliver steady benefits, such as buildings or office equipment. Third, it is the default method accepted under both US GAAP and IFRS for many asset classes, which makes financial statements easier to compare. That is why lenders, investors, and tax authorities are all comfortable with it.
The Straight Line Depreciation Formula
The formula is refreshingly simple:
Annual Depreciation = (Asset Cost − Salvage Value) ÷ Useful Life in Years
Each term has a precise meaning. The asset cost is everything paid to acquire the asset and put it into service, which can include purchase price, delivery charges, installation, and testing. The salvage value (also called residual value or scrap value) is the estimated amount the asset will be worth at the end of its useful life — what you could sell it for or its scrap value. Subtracting salvage value gives the depreciable amount, the total cost that will actually be expensed. Dividing by the useful life spreads that amount evenly over time.
From the annual figure, the monthly depreciation is simply the annual amount divided by 12, and the book value at the end of any given year equals the original cost minus accumulated depreciation to date.
How to Use This Calculator
Using the calculator takes three inputs and one click:
Step 1: Enter the Asset Cost
Type the total capitalized cost of the asset in dollars. Include everything required to get the asset ready for use — price, freight, installation — because accounting rules depreciate the full capitalized cost, not just the sticker price.
Step 2: Enter the Salvage Value
Estimate what the asset will be worth when you retire it. If you genuinely expect it to be worthless (fully consumed or scrapped for nothing), enter 0. Be realistic: auditors and tax authorities expect salvage estimates to be supportable.
Step 3: Enter the Useful Life
Enter how many years the asset will remain productive. Common benchmarks are 3–5 years for computers, 5–7 years for vehicles, 7–10 years for machinery, and 27.5 or 39 years for residential and commercial real estate under US tax rules. Your company's capitalization policy or industry practice is the best guide.
Step 4: Read the Results
The calculator shows the annual depreciation expense, the monthly equivalent, the total depreciable amount, and a full schedule table listing each year's expense, accumulated depreciation, and remaining book value.
Worked Example
Suppose a bakery buys a commercial oven for $24,000, including delivery and installation. The owner estimates the oven will last 8 years and can then be sold for $4,000 as used equipment.
Depreciable amount = $24,000 − $4,000 = $20,000. Annual depreciation = $20,000 ÷ 8 = $2,500 per year. Monthly depreciation = $2,500 ÷ 12 = $208.33. After 3 years, accumulated depreciation is $7,500 and the book value is $16,500. After 8 years, accumulated depreciation reaches $20,000 and the book value equals the $4,000 salvage value — exactly as the math requires.
This predictability is the method's signature strength: the income statement shows the same $2,500 expense every year, making budgeting and forecasting straightforward.
Formulas for Book Value and Accumulated Depreciation
Two companion formulas turn the annual charge D into the numbers that appear on a balance sheet:
- Accumulated depreciation after t years: AD_t = D × t
- Book value after t years: BV_t = Cost − AD_t
- Straight line rate: D ÷ Cost × 100
For the bakery oven from the worked example ($24,000 cost, $4,000 salvage, 8-year life, D = $2,500): after 5 years, accumulated depreciation is 2,500 × 5 = $12,500 and book value is 24,000 − 12,500 = $11,500. The rate is 2,500 ÷ 24,000 × 100 = 10.42% of cost per year. Book value falls in a straight line — hence the name — and stops at the $4,000 salvage value, never below it.
When to Use the Straight Line Method
Straight line depreciation fits best when an asset's usefulness declines at a roughly constant rate. Buildings, office furniture, warehouse racking, and leasehold improvements are classic examples — a desk does not become dramatically less useful in year one than in year five. It is also the right choice when simplicity and comparability matter more than perfectly matching the asset's productivity curve, which is the case for most small and mid-size businesses.
Many companies use straight line depreciation for their financial statements even when they use an accelerated method for tax purposes. This is entirely legitimate: tax depreciation follows government rules designed to encourage investment, while book depreciation follows accounting principles designed to report economic reality. The difference creates deferred tax items that accountants reconcile separately.
Straight Line vs. Other Depreciation Methods
Declining Balance Method
The declining balance method applies a fixed percentage to the shrinking book value each year, so depreciation is heaviest early and tapers off. A delivery truck that loses value fastest in its first two years might be better modeled this way. The trade-off is complexity and uneven expenses.
Sum-of-the-Years'-Digits Method
This accelerated method also front-loads expense but in a gentler, arithmetic pattern. It is less common today but still appears in some industries and older textbooks.
Units of Production Method
Instead of time, this method depreciates based on actual usage — miles driven, hours run, or units produced. A printing press expected to produce 1,000,000 impressions depreciates per impression. It is the most accurate when wear depends on activity, but it requires reliable usage tracking.
Compared with all three, the straight line method is the simplest to calculate, the easiest to explain to non-accountants, and the least likely to produce surprises in financial planning.
Side-by-Side Numbers for the Same Oven
Abstract descriptions hide how different the methods feel in practice. Here is the $24,000 oven ($4,000 salvage value, 8-year life, $20,000 depreciable base) under all three methods:
| Method | Year 1 expense | Year 2 expense | Pattern |
|---|---|---|---|
| Straight line | $2,500 | $2,500 | Identical charge every year |
| Double declining balance (25% of book value) | $6,000 | $4,500 | Front-loaded, shrinks each year |
| Sum-of-the-years'-digits | $4,444 | $3,889 | Front-loaded, falls in even steps |
All three write off the same $20,000 over the asset's life — they differ only in timing. Note this comparison is about book depreciation for financial statements: US tax returns generally use MACRS, a statutory accelerated system with its own recovery periods.
Limitations to Keep in Mind
The straight line method is an estimate built on estimates. Salvage values and useful lives are management judgments, and getting them wrong distorts both the income statement and the balance sheet. The method also ignores the time value of money and assumes zero maintenance-cost escalation, which rarely holds for aging equipment. Finally, it does not reflect market reality for assets like vehicles or technology that lose value fastest early on. Review your depreciation assumptions at least annually and adjust prospectively when reality diverges from the original estimate.
Frequently Asked Questions
What is the straight line depreciation formula?
Annual depreciation equals (asset cost minus salvage value) divided by useful life in years. For example, a $50,000 machine with a $5,000 salvage value and a 10-year life depreciates $4,500 per year.
Can the salvage value be zero?
Yes. If you expect the asset to have no resale or scrap value at the end of its life, enter zero and the entire cost is depreciated over the useful life.
What is the difference between book value and market value?
Book value is the accounting carrying amount: cost minus accumulated depreciation. Market value is what the asset would actually sell for today. The two often differ because depreciation is a systematic allocation, not a valuation.
Is straight line depreciation allowed for taxes?
In the United States, the Modified Accelerated Cost Recovery System (MACRS) is required for most tax depreciation, but MACRS itself uses straight line calculations for real property and as an option for other assets. Always confirm current tax rules with a professional.
What happens when an asset is fully depreciated?
The asset stays on the books at its salvage value (often zero) with accumulated depreciation equal to the depreciable amount. No further depreciation is recorded, even if the asset is still in use.
Can I change the useful life after starting depreciation?
Yes. Accounting standards treat this as a change in estimate, applied prospectively: you recalculate the remaining depreciable amount over the revised remaining life. You do not restate prior years.
What is the depreciable base (depreciable cost)?
The depreciable base is the total amount that will be written off over the asset's life: cost minus salvage value. For the $24,000 oven with a $4,000 salvage value, the depreciable base is $20,000, and it is this $20,000 — not the full $24,000 — that the straight line formula divides by the useful life.
How do I calculate straight line depreciation in Excel?
Use the SLN function: =SLN(cost, salvage, life). For the oven example, =SLN(24000, 4000, 8) returns 2500, the annual depreciation. Google Sheets supports the same SLN function with the same arguments.