Straight line depreciation: formula, examples, and FAQs

Published Thursday 16 April 2026

Table of contents

• What is straight-line depreciation?
• How to calculate straight-line depreciation
• Straight-line depreciation example
• Pros and cons of straight-line depreciation
• Other depreciation methods
• IRS requirements for straight-line depreciation
• Recording straight-line depreciation in your accounting system
• Simplify depreciation tracking with Xero
• FAQs on straight-line depreciation

Key takeaways

• Calculate straight-line depreciation by subtracting an asset's salvage value from its total cost, then dividing by its useful life in years — this gives you a fixed annual depreciation expense that stays the same every year.
• Choose straight-line depreciation for assets that lose value steadily over time, such as buildings, furniture, and office equipment, but consider accelerated methods for assets like computers and vehicles that lose value faster in their early years.
• Apply the same depreciation method consistently for each individual asset throughout its entire useful life, as switching methods for a single asset is not permitted once you've made your choice.
• Use straight-line depreciation for your internal bookkeeping even if your tax return requires a different method, such as MACRS, since the IRS allows you to maintain separate approaches for each purpose.

What is straight-line depreciation?

Straight-line depreciation divides an asset's cost equally across each year of its useful life.

Here's how it works: if you buy a computer expected to last five years, you depreciate one-fifth of its value each year.

Useful life refers to how long the asset will remain functional for your business. You need to estimate how long the asset will remain functional for your business. Once you choose straight-line depreciation for an asset, you must use the same method for that asset's entire life.

How to calculate straight-line depreciation

The straight-line depreciation formula is:

(Asset Cost – Salvage Value) ÷ Useful Life = Annual Depreciation

Follow these steps to calculate straight-line depreciation:

1. Calculate total asset cost: Add the purchase price, sales tax, shipping, and installation fees.
2. Estimate salvage value: Determine what the asset will be worth at the end of its useful life. This step is optional in the US.
3. Apply the formula: Subtract salvage value from total cost, then divide by the number of years of useful life.
4. Convert to monthly depreciation: Divide the annual amount by 12 to create a depreciation schedule in your bookkeeping.

Straight-line depreciation example

Here's how straight-line depreciation works in practice.

Example 1: Manufacturing equipment

• Asset cost: $22,000
• Salvage value: $2,000
• Useful life: 10 years
• Calculation: ($22,000 – $2,000) ÷ 10 = $2,000 per year

You would record $2,000 in depreciation expense each year for 10 years.

Example 2: Delivery vehicle

• Asset cost: $35,000
• Salvage value: $5,000
• Useful life: 6 years
• Calculation: ($35,000 – $5,000) ÷ 6 = $5,000 per year

You would record $5,000 in depreciation expense each year for 6 years.

Pros and cons of straight-line depreciation

Straight-line depreciation works well for many businesses, but it's not the right fit for every situation. Consider these factors before choosing this method.

Pros

• Simple calculations: The formula is easy to apply, which reduces errors and simplifies record-keeping.
• Predictable expenses: The same amount is depreciated each year, making budgeting and forecasting easier.
• Consistent financial statements: Equal depreciation amounts create stable expense reporting across periods.

Cons

• Requires estimation: No fixed rules exist for useful life or salvage value, so you need to document your reasoning.
• Doesn't match all asset types: Some assets lose most of their value early. For these, accelerated depreciation methods may better reflect actual wear.
• May understate early expenses: If an asset generates more revenue in its first years, straight-line depreciation may not align expenses with income.

Other depreciation methods

Several depreciation methods exist beyond straight-line. These include the section 179 expense deduction, which has a maximum limit of $2,500,000 for tax years beginning in 2025. The IRS requires most businesses to use the Modified Accelerated Cost Recovery System (MACRS) or Alternative Depreciation System (ADS) on tax returns. You can use different methods for internal bookkeeping.

If your business follows Generally Accepted Accounting Principles (GAAP), specific rules guide your depreciation choices. Consider whether your asset loses value steadily over time or more heavily in its first years. An accountant can help you choose the right method for each asset type.

Here are four common alternatives to straight-line depreciation:

• Units of production: Depreciates based on actual usage rather than time. Best for machinery with variable workloads.
• Declining balance: Claims more depreciation early in an asset's life, then slows over time. Best for assets like phones and computers that lose value quickly.
• Double-declining balance: Accelerates depreciation at twice the straight-line rate. Best for high-tech equipment that becomes obsolete fast.
• Sum-of-the-years' digits: Calculates depreciation using a fraction based on remaining useful life. Best for assets with higher productivity in early years.

IRS requirements for straight-line depreciation

Yes, the IRS allows straight-line depreciation. You can elect to use this method instead of MACRS for tax purposes.

Most businesses must use the Modified Accelerated Cost Recovery System (MACRS) on their federal tax returns. However, you can make an irrevocable election to use straight-line depreciation for any asset class.

The Alternative Depreciation System (ADS) requires straight-line depreciation in certain situations:

• Listed property used 50% or less for business (which generally includes passenger automobiles weighing 6,000 pounds or less)
• Tax-exempt property
• Property used primarily outside the United States

For internal bookkeeping, you can use straight-line depreciation regardless of which method you use for taxes. Consult an accountant to determine the best approach for your specific situation.

Recording straight-line depreciation in your accounting system

To record depreciation, you need to create a journal entry in your accounting system. In double-entry bookkeeping, each depreciation entry has two parts:

• Debit: Depreciation expense account (increases expenses on your income statement)
• Credit: Accumulated depreciation account (reduces asset value on your balance sheet)

Accumulated depreciation is a contra-asset account. It carries a credit balance and offsets the original asset cost over time.

Accounting software like Xero can automate these entries and track depreciation schedules for you. If you're unsure which method to use, consult a certified public accountant (CPA).

Simplify depreciation tracking with Xero

Straight-line depreciation gives you predictable expenses and simple calculations. But tracking depreciation schedules, recording journal entries, and staying organized takes time.

Xero automates depreciation tracking so you can focus on running your business. Set up your assets once, and Xero calculates and records depreciation for you. You get accurate financial reports without the manual work.

Ready to simplify your bookkeeping? Get one month free and see how Xero can help.

FAQs on straight-line depreciation

Here are answers to common questions about straight-line depreciation.

Does the IRS allow straight-line depreciation?

Yes. You can elect to use straight-line depreciation instead of MACRS for any asset class on your federal tax return.

What's the difference between straight-line and declining balance depreciation?

Straight-line spreads costs evenly across an asset's life. Declining balance front-loads depreciation, claiming more expense in early years and less over time.

Can I use different depreciation methods for different assets?

Yes, but you must apply the same method consistently for each individual asset throughout its useful life.

What happens if I estimate the wrong useful life?

You can adjust future depreciation if your estimate proves inaccurate. Consult an accountant about whether to make a prospective change or file an amended return.

Which assets work best with straight-line depreciation?

Straight-line works well for assets that lose value steadily, like buildings, furniture, and office equipment. Assets that depreciate quickly, like computers and vehicles, may benefit from accelerated methods. For example, the section 179 deduction allows up to $31,300 for sport utility vehicles placed in service in 2025.