The most common type of depreciation is the straight-line method. It is favored for its simplicity and consistency, where the expense is spread evenly over an asset’s useful life by taking the cost minus salvage value and dividing by the years of use.
The most frequently used depreciation method in business today is straight-line depreciation. This method spreads the cost of an asset evenly over its useful life, resulting in a consistent amount of depreciation expense each year.
The four methods for calculating depreciation include straight-line, declining balance, units of production and sum of years digits (SYD). The best depreciation method for a company to use depends on its accounting needs, types of assets, size and industry.
SLM results in a consistent depreciation expense each year, providing stability and ease of analysis. On the other hand, WDV can lead to higher depreciation expenses in the early years and lower expenses in later years, reflecting the actual decline in the asset's value.
Depreciation Methods
Methods of Tax Depreciation
Under the General Depreciation system, there are three depreciation methods: 200 Percent Declining Balance, 150 Percent Declining Balance, and the Straight-Line Method.
MACRS – which stands for Modified Accelerated Cost Recovery System – is the tax depreciation system used in the U.S. In other words, MACRS depreciation is the system used to calculate your business's tax deductions based on the depreciation of your tangible (depreciable) assets.
Smaller tax deductions in the early years: Other depreciation methods, such as accelerated depreciation, can provide larger tax deductions in the early years of an asset's life. If maximizing early tax deductions is a priority for your business, straight-line depreciation might not be the optimal choice.
According to law, computers and other IT equipment are typically depreciable over 3 years, i.e. a 33.33% depreciation rate per year. After three years, the equipment is considered obsolete. Most companies renew their computer fleet every three years, which corresponds to an average computer's useful life.
This method is especially suitable for industries where assets deteriorate rapidly or the assets' valuation is inaccurate under historical cost because it provides the exact point-in-time valuation closest to market value. Also, it is a tax- break that features higher depreciation in the earlier years.
It then explains 8 different depreciation methods - straight line, sinking fund, sum of years digits, declining balance, double declining balance, working hours, constant unit, and output.
The term “depreciation” refers to the systematic allocation of a fixed asset's cost over its useful life. It's not a matter of valuation but a means of cost allocation. GAAP requires depreciation to match the expense of using an asset with the periods in which it generates revenue.
Straight-line depreciation is an uncomplicated way to calculate depreciation on your assets. Businesses choose this method because they can spread the expense over several accounting periods (or several years) to reduce their net income, and they prefer it to be a predictable expense.
You may depreciate property that meets all the following requirements:
Depreciation Systems to Use with MACRS Depreciation
Generally, taxpayers are expected to use GDS, but there are situations when the law requires them to use ADS or when taxpayers may elect to use the ADS system.
Amortization is the practice of spreading an intangible asset's cost over that asset's useful life. Depreciation involves expensing a fixed asset as it's used to reflect its anticipated deterioration.
The double declining balance method of depreciation, also known as the 200% declining balance method of depreciation, is a form of accelerated depreciation. This means that compared to the straight-line method, the depreciation expense will be faster in the early years of the asset's life but slower in the later years.
The tax law has defined a specific class life for each type of asset. Real Property is 39 year property, office furniture is 7 year property and autos and trucks are 5 year property. See Publication 946, How to Depreciate Property.
One Big Beautiful Bill Act
In 2025, the OBBB reinstated 100% bonus depreciation. Starting with property placed in service after Jan. 19, 2025, businesses can again deduct 100% of the cost of most qualifying property up front moving forward.
Straight-line method: This is the most commonly used method for calculating depreciation. To calculate the value, the difference between the asset's cost and the expected salvage value is divided by the total number of years a company expects to use it.
Because the double-declining balance method results in larger depreciation expenses near the beginning of an asset's life—and smaller depreciation expenses later on—it makes sense to use this method with assets that lose value quickly.
The four common types of depreciation methods used in accounting are Straight-Line, Double Declining Balance, Units of Production, and Sum-of-the-Years'-Digits, each spreading an asset's cost differently over its useful life to reflect usage or decline in value, with Straight-Line being the simplest and most common.
Three-year, 5-year, 7-year and 10-year property uses the 200% declining balance method. This means you take 200% of the amount that would be depreciated using the straight-line method.
MACRS spreads deductions over several years, with higher deductions early on. It's the default depreciation method for most assets. It's particularly helpful for businesses seeking a mix of upfront tax savings and consistent long-term benefits.