Guides
Depreciation Methods Explained: Straight-Line vs Accelerated
Depreciation methods are the accounting formulas that spread the cost of a fixed asset across the years it is used. The main choice is between straight-line, which deducts an equal amount each year, and accelerated methods, which front-load larger deductions early. The four book methods are straight-line, declining balance (including double-declining balance), units of production, and sum-of-the-years’-digits. For U.S. tax, most business property instead uses MACRS, a mandatory accelerated system.
Total depreciation is identical under every method. Only the timing of the expense changes, and timing drives tax deferral, reported earnings, and cash flow.
What is depreciation and why the method matters
Depreciation allocates the cost of a tangible asset (minus any salvage value) over its useful life instead of expensing it all at once. The method you pick sets how much expense lands in each year. It does not change the total, which always equals cost minus salvage.
The method matters because it shifts income between periods. An accelerated method reports lower profit and lower taxable income early, deferring tax. Straight-line reports steady profit, which lenders and equity investors often prefer. Under U.S. GAAP (ASC 360), a company chooses a method that reflects the pattern in which the asset’s economic benefits are consumed.
Land is never depreciated. Depreciable assets include machinery, vehicles, computers, furniture, and buildings.
The four book depreciation methods
The four generally accepted book methods are straight-line, declining balance, units of production, and sum-of-the-years’-digits. Straight-line is the simplest and most common. The other three either front-load expense (declining balance, sum-of-the-years’-digits) or tie it to usage (units of production). Each uses the same three inputs: cost, salvage value, and useful life.
Straight-line depreciation
Straight-line spreads cost evenly. The annual expense equals (cost minus salvage value) divided by useful life in years. It produces the same deduction every full year, which makes it predictable and easy to audit. It suits assets that lose value at a steady rate, such as buildings and office furniture.
Formula: (Cost – Salvage) / Useful life. For a $50,000 asset with a $5,000 salvage value and a 5-year life, the annual expense is ($50,000 – $5,000) / 5 = $9,000 per year.
Declining balance and double-declining balance (DDB)
Declining balance applies a fixed rate to the asset’s book value at the start of each year, so the deduction shrinks over time. Double-declining balance (DDB) uses twice the straight-line rate, making it the most aggressive common method. Salvage value is ignored in the calculation but caps total depreciation: you stop once book value reaches salvage.
The DDB rate is 2 / useful life. For a 5-year asset, that is 2 / 5 = 40% applied to the opening book value each year. Many companies switch from DDB to straight-line in the later years to fully depreciate the asset down to salvage.
Units of production
Units of production ties depreciation to output rather than time. You compute a rate per unit, then multiply by units produced each period. Expense rises in busy years and falls in slow ones, which can match the true wear on machinery, vehicles by mileage, or extraction equipment.
Rate per unit = (Cost – Salvage) / Total estimated units. If a $50,000 machine with $5,000 salvage is expected to produce 90,000 units, the rate is $0.50 per unit. Producing 20,000 units in a year gives $10,000 of depreciation.
Sum-of-the-years’-digits (SYD)
Sum-of-the-years’-digits is an accelerated method that is less aggressive than DDB. You add the digits of the useful life to get a denominator, then apply a declining fraction each year. For a 5-year life, the sum is 5+4+3+2+1 = 15, so Year 1 uses 5/15, Year 2 uses 4/15, and so on.
Each year’s expense = (remaining life at start of year / sum of digits) x (Cost – Salvage). SYD front-loads expense but tapers more gradually than declining balance, which can better match assets that lose most value early yet still work for years.
Methods comparison table with a worked example
The table below applies all four book methods to the same asset: cost $50,000, salvage value $5,000, useful life 5 years, and (for units of production) 90,000 total expected units produced evenly at 18,000 per year. The depreciable base is $45,000 under every method. Totals match at $45,000; only the yearly pattern differs.
| Year | Straight-line | Double-declining balance (40%) | Sum-of-years’-digits | Units of production (18,000 units/yr) |
|---|---|---|---|---|
| 1 | $9,000 | $20,000 | $15,000 | $9,000 |
| 2 | $9,000 | $12,000 | $12,000 | $9,000 |
| 3 | $9,000 | $7,200 | $9,000 | $9,000 |
| 4 | $9,000 | $3,240 (then switch) | $6,000 | $9,000 |
| 5 | $9,000 | $2,560 | $3,000 | $9,000 |
| Total | $45,000 | $45,000 | $45,000 | $45,000 |
Notes on the DDB column: Year 1 is 40% of $50,000 = $20,000. Year 2 is 40% of the $30,000 remaining book value = $12,000, and so on. Because DDB ignores salvage in the formula, the final years are adjusted so book value lands exactly at the $5,000 salvage floor, which is why total depreciation stops at $45,000. Units of production here matches straight-line only because output is assumed constant; uneven production would shift the expense between years.
MACRS: the required method for U.S. tax depreciation
MACRS (Modified Accelerated Cost Recovery System) is the mandatory tax depreciation system for most business property placed in service after 1986. Book methods above are for financial statements; MACRS governs the federal tax deduction. MACRS ignores salvage value and assigns each asset a recovery period and a built-in method.
MACRS has two systems. The General Depreciation System (GDS) is used by default and is accelerated. The Alternative Depreciation System (ADS) uses straight-line over longer periods and is required for certain property, such as tax-exempt use property or when elected. Under GDS, 3-, 5-, 7-, and 10-year property classes use the 200% declining balance method, while 15- and 20-year classes use 150% declining balance. Both switch to straight-line when that yields a larger deduction.
MACRS applies a convention that sets the first-year deduction. The half-year convention treats all property as placed in service at the midpoint of the year. A mid-quarter convention applies if more than 40% of the year’s property is placed in service in the last quarter. Real property uses the mid-month convention.
MACRS 5-year property percentages (half-year convention)
Using the GDS 200% declining balance half-year table from IRS Publication 946, 5-year property (which includes cars, computers, and office equipment) depreciates on this schedule. The percentages apply to the full unadjusted cost basis and always total 100%.
| Year | Rate | Depreciation on $50,000 basis |
|---|---|---|
| 1 | 20.00% | $10,000 |
| 2 | 32.00% | $16,000 |
| 3 | 19.20% | $9,600 |
| 4 | 11.52% | $5,760 |
| 5 | 11.52% | $5,760 |
| 6 | 5.76% | $2,880 |
The Year 1 rate is 20.00%, not the full 40.00% declining balance rate, because the half-year convention assumes the asset was in service for only half of the first year. That is also why depreciation stretches into a sixth calendar year for a 5-year asset.
Bonus depreciation and Section 179 in 2026
Two provisions can accelerate the tax write-off far beyond the MACRS table. Section 179 lets a business expense qualifying property immediately, up to $2,560,000 for 2026, phasing out dollar-for-dollar above $4,090,000 of purchases, and it cannot exceed taxable business income. Bonus depreciation is 100% for qualified property acquired and placed in service after January 19, 2025, under the One Big Beautiful Bill Act (OBBBA), with no dollar cap and the ability to create a loss.
The IRS generally requires applying Section 179 first, then bonus depreciation, then regular MACRS on any remaining basis. Depreciation, Section 179, and any listed-property details are reported on IRS Form 4562, Depreciation and Amortization, filed with the business return.
Depreciation vs amortization
Depreciation and amortization both spread a cost over time, but depreciation applies to tangible assets (equipment, buildings, vehicles) while amortization applies to intangible assets (patents, software, purchased goodwill for tax) and to certain capitalized expenditures. Amortization is almost always straight-line.
For example, research and experimental costs are amortized, not depreciated, under the current rules covered in our guide to Section 174 R&E capitalization. The mechanics differ, but both reduce taxable income over multiple years rather than in one.
Choosing a depreciation method
For book (GAAP) purposes, match the method to how the asset delivers value: straight-line for steady use, units of production for output-driven wear, and an accelerated method when the asset is most productive when new. For tax, MACRS is generally mandatory, and the real levers are Section 179 and bonus depreciation.
Book and tax methods can differ for the same asset, which creates temporary differences that a company tracks as deferred taxes. Switching a method after filing generally requires IRS consent, as explained in our guide to Form 3115 change in accounting method. Whether you can even use certain methods can depend on entity type and gross receipts, which ties into the cash vs accrual accounting rules and how small business tax filings treat capital purchases. Lease-related assets follow a separate model under ASC 842 lease accounting.
Frequently asked questions
What are the four main depreciation methods?
The four generally accepted book depreciation methods are straight-line, declining balance (including double-declining balance), units of production, and sum-of-the-years’-digits. Straight-line spreads cost evenly, declining balance and sum-of-the-years’-digits front-load the expense, and units of production ties it to output. For U.S. federal tax, most property instead uses MACRS.
Is straight-line or accelerated depreciation better?
It depends on the goal. Accelerated methods defer tax by front-loading deductions, which helps cash flow when a business is profitable early. Straight-line reports steady earnings that lenders and investors often prefer. Total depreciation is the same either way, so the choice is about timing, tax deferral, and how you want reported profit to look.
Does MACRS use straight-line or declining balance?
MACRS uses both. Under the default General Depreciation System, 3-, 5-, 7-, and 10-year property uses 200% declining balance, and 15- and 20-year property uses 150% declining balance, each switching to straight-line when that gives a larger deduction. The Alternative Depreciation System uses straight-line over longer recovery periods and is required for certain property.
How does salvage value affect depreciation?
Salvage value is the estimated amount recoverable at the end of an asset’s life. Straight-line, units of production, and sum-of-the-years’-digits subtract salvage from cost to get the depreciable base. Declining balance ignores salvage in the formula but stops once book value reaches salvage. MACRS ignores salvage value entirely.
What is the difference between depreciation and amortization?
Depreciation spreads the cost of tangible assets like equipment and buildings, while amortization spreads the cost of intangible assets like patents, software, and certain capitalized costs. Amortization is nearly always straight-line, whereas depreciation offers several methods. Both are reported on IRS Form 4562 and reduce taxable income over multiple years.
What form reports depreciation to the IRS?
Businesses report depreciation, Section 179 expensing, bonus depreciation, and amortization on IRS Form 4562, Depreciation and Amortization. It is filed with the business tax return. Form 4562 also captures details for listed property, such as vehicles, that carry extra substantiation rules.
Can I switch depreciation methods after I start?
Changing a depreciation method for tax purposes is generally treated as a change in accounting method that requires IRS consent, filed on Form 3115, often with a Section 481(a) adjustment. For book purposes, a change in method or estimate follows GAAP rules and may require disclosure. In many cases the change is not free to make unilaterally, so plan the method up front.
Reviewed by The Ledgerism Editorial Team. Last reviewed: July 2026.