Depreciation Calculator: Asset Value Decline Calculator

2026 Depreciation Rules and Allowances
Why Depreciation Matters for Business Planning
How to Use This Calculator
Depreciation Methods Explained
US Tax Depreciation: MACRS and Section 179
UK Capital Allowances
Worked Calculations with Real Assets
Vehicle Depreciation in the Real World
Limitations and Professional Considerations
Sources
FAQs

2026 Depreciation Rules and Allowances

The depreciation landscape in 2026 offers substantial opportunities for businesses to accelerate tax deductions on capital investments. In the United States, the One Big Beautiful Bill Act of 2025 (OBBBA) restored 100% bonus depreciation, whilst the UK has made full expensing permanent for companies. Understanding these provisions can significantly affect cash flow and investment decisions.

US: Section 179 and Bonus Depreciation

Section 179 Deduction Limits for 2026:

| Parameter | 2026 Amount | |-----------|------------:| | Maximum deduction | $2,560,000 | | Phase-out threshold begins | $4,090,000 | | Phase-out complete | $6,650,000 | | Heavy SUV cap | $32,000 |

Section 179 allows immediate expensing of qualifying property rather than depreciating over multiple years. The deduction is limited by the business's taxable income—it cannot create a net operating loss.

Bonus Depreciation for 2026:

Following OBBBA, bonus depreciation has returned to 100% for qualified property acquired and placed in service after 19 January 2025. Unlike Section 179, bonus depreciation has no overall dollar limit and can create or increase a net operating loss, providing additional flexibility for businesses with significant capital expenditure.

Order of Application:

Section 179 first (elected on specific assets up to limit)
Bonus depreciation next (applies automatically unless elected out)
MACRS last (remaining basis over recovery period)

UK: Capital Allowances Update

The UK capital allowances regime underwent significant changes effective from early 2026:

Full Expensing (Permanent):

100% first-year allowance for main rate plant and machinery
50% first-year allowance for special rate expenditure
Available only to companies (not sole traders or partnerships)
Excludes cars and leased assets

Annual Investment Allowance (AIA):

Permanently set at £1,000,000
Available to all business structures
Covers plant and machinery, integral features and long-life assets

New 40% First-Year Allowance (from January 2026):

Available to companies and unincorporated businesses
Fewer restrictions than full expensing
Applies from 1 January 2026 (corporation tax) or 6 April 2026 (income tax)

Writing Down Allowances Reduction:

Main rate reduced from 18% to 14% from 1 April 2026 (CT) / 6 April 2026 (IT)
Hybrid rates apply for accounting periods spanning the change date

Zero Emission Vehicles:

100% first-year allowance extended to 31 March 2027 (companies)
Includes electric vehicle charging points

Why Depreciation Matters for Business Planning

Depreciation allocates the cost of long-term assets over their useful lives, matching expenses with the revenue they help generate. Beyond accounting compliance, depreciation decisions have significant financial implications.

The Tax Shield Effect

Depreciation is a non-cash expense—it reduces taxable income without requiring cash outflow (beyond the initial purchase). This "depreciation tax shield" provides real cash flow benefits.

Tax Shield Calculation:

Annual Tax Savings = Depreciation Expense × Tax Rate

Example: A £100,000 asset depreciated over 5 years (£20,000 annually) at a 25% corporate tax rate generates £5,000 in annual tax savings. Over the asset's life, total tax savings equal £25,000.

Accelerated Depreciation Benefits

Accelerated methods (declining balance, MACRS, bonus depreciation) front-load deductions, providing tax benefits earlier. Due to the time value of money, £5,000 saved today is worth more than £5,000 saved in five years.

Present Value Comparison (10% discount rate):

| Method | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | PV of Savings | |--------|--------|--------|--------|--------|--------|---------------| | Straight-line | £5,000 | £5,000 | £5,000 | £5,000 | £5,000 | £18,954 | | Accelerated | £10,000 | £6,000 | £4,000 | £3,000 | £2,000 | £20,721 |

Despite identical total deductions (£25,000), accelerated depreciation provides £1,767 more in present value due to timing.

How to Use This Calculator

Step 1: Enter Asset Cost Input the original purchase price including delivery, installation and setup costs that are capitalisable. Do not include financing costs or interest.

Step 2: Enter Salvage Value Estimate the asset's value at the end of its useful life. This is what you expect to receive upon disposal. For tax purposes, salvage value is often set to zero under MACRS.

Step 3: Enter Useful Life Input the expected useful life in years. For tax purposes, refer to MACRS recovery periods (US) or HMRC guidelines (UK) rather than estimated actual life.

Step 4: Select Depreciation Method Choose straight-line (equal amounts each year) or other available methods. Different methods suit different purposes—tax versus financial reporting.

Step 5: Review Results The calculator displays:

Annual depreciation expense
Accumulated depreciation by year
Current book value
Depreciation rate (annual and total)
Estimated tax savings
Year-by-year depreciation schedule

Depreciation Methods Explained

Straight-Line Method

The simplest and most common method for financial reporting. Depreciation is constant each year:

Annual Depreciation = (Cost - Salvage Value) ÷ Useful Life

Example: £80,000 equipment, £8,000 salvage, 8-year life

Annual depreciation: (£80,000 - £8,000) ÷ 8 = £9,000

| Year | Depreciation | Accumulated | Book Value | |------|--------------|-------------|------------| | 1 | £9,000 | £9,000 | £71,000 | | 2 | £9,000 | £18,000 | £62,000 | | 3 | £9,000 | £27,000 | £53,000 | | 4 | £9,000 | £36,000 | £44,000 | | 5 | £9,000 | £45,000 | £35,000 | | 6 | £9,000 | £54,000 | £26,000 | | 7 | £9,000 | £63,000 | £17,000 | | 8 | £9,000 | £72,000 | £8,000 |

Double Declining Balance (DDB)

An accelerated method that applies twice the straight-line rate to the declining book value:

DDB Rate = (2 ÷ Useful Life) × 100%
Year n Depreciation = Book Value × DDB Rate

Example: £80,000 equipment, 8-year life, DDB rate = 25%

| Year | Beginning Book Value | Depreciation | Ending Book Value | |------|---------------------|--------------|-------------------| | 1 | £80,000 | £20,000 | £60,000 | | 2 | £60,000 | £15,000 | £45,000 | | 3 | £45,000 | £11,250 | £33,750 | | 4 | £33,750 | £8,438 | £25,312 | | 5 | £25,312 | £6,328 | £18,984 |

Typically switches to straight-line in later years to ensure full depreciation.

Sum-of-Years'-Digits (SYD)

Another accelerated method using a declining fraction based on remaining life:

Sum = n(n+1)/2 where n = useful life
Year 1 fraction = n/Sum
Year 2 fraction = (n-1)/Sum

Example: 5-year asset, Sum = 5(6)/2 = 15

| Year | Fraction | Applied To | Depreciation | |------|----------|------------|--------------| | 1 | 5/15 | Depreciable amount | 33.3% | | 2 | 4/15 | Depreciable amount | 26.7% | | 3 | 3/15 | Depreciable amount | 20.0% | | 4 | 2/15 | Depreciable amount | 13.3% | | 5 | 1/15 | Depreciable amount | 6.7% |

US Tax Depreciation: MACRS and Section 179

MACRS Recovery Periods

The Modified Accelerated Cost Recovery System (MACRS) assigns assets to property classes with predetermined recovery periods:

| Property Class | Recovery Period | Examples | |----------------|-----------------|----------| | 3-year | 3 years | Racehorses, tractor units | | 5-year | 5 years | Computers, office equipment, automobiles, trucks | | 7-year | 7 years | Office furniture, farm equipment, most machinery | | 10-year | 10 years | Barges, vessels, single-purpose agricultural structures | | 15-year | 15 years | Land improvements, retail motor fuel outlets | | 20-year | 20 years | Farm buildings, municipal sewers | | 27.5-year | 27.5 years | Residential rental property | | 39-year | 39 years | Nonresidential real property |

MACRS Percentage Tables (200% Declining Balance, Half-Year Convention)

5-Year Property:

| Year | MACRS % | |------|---------| | 1 | 20.00% | | 2 | 32.00% | | 3 | 19.20% | | 4 | 11.52% | | 5 | 11.52% | | 6 | 5.76% |

7-Year Property:

| Year | MACRS % | |------|---------| | 1 | 14.29% | | 2 | 24.49% | | 3 | 17.49% | | 4 | 12.49% | | 5 | 8.93% | | 6 | 8.92% | | 7 | 8.93% | | 8 | 4.46% |

Note: The half-year convention treats all property as placed in service at mid-year, extending recovery into Year 6 (for 5-year property) or Year 8 (for 7-year property).

Section 179 vs. Bonus Depreciation Decision

| Factor | Section 179 | Bonus Depreciation | |--------|-------------|-------------------| | Annual limit | $2,560,000 (2026) | No limit | | Net operating loss | Cannot create | Can create/increase | | Asset selection | Elective by asset | Automatic (elect out by class) | | Income limitation | Yes (taxable income) | No | | Best for | Profitable businesses with targeted assets | High capital expenditure, loss positions |

UK Capital Allowances

Main Pool and Special Rate Pool

UK capital allowances separate assets into pools with different treatment:

Main Pool (Main Rate Assets):

Most plant and machinery
Writing down allowance: 14% (from April 2026, reduced from 18%)
Full expensing available (100% FYA for companies)

Special Rate Pool:

Long-life assets (expected life over 25 years)
Integral features (electrical systems, lifts, escalators)
Thermal insulation
Writing down allowance: 6%
50% FYA available for companies

Example: UK Company Capital Investment

Scenario: UK company purchases £500,000 manufacturing equipment in June 2026

Option 1: Full Expensing

Year 1 deduction: £500,000 (100%)
Tax savings at 25%: £125,000
Immediate cash flow benefit

Option 2: Writing Down Allowances

Year 1: £500,000 × 14% = £70,000
Year 2: £430,000 × 14% = £60,200
Year 3: £369,800 × 14% = £51,772
Tax savings spread over multiple years

For most companies, full expensing provides superior cash flow benefits due to time value of money.

Sole Traders and Partnerships

Unincorporated businesses cannot access full expensing but benefit from:

Annual Investment Allowance: £1,000,000 first-year deduction
New 40% First-Year Allowance (from April 2026)
Writing down allowances at 14%

Worked Calculations with Real Assets

Scenario 1: US Computer Equipment Purchase

Profile: US corporation purchases $75,000 of computer equipment (5-year MACRS property) in March 2026.

Option A: Section 179 + MACRS

Section 179 election: $75,000 (full amount)
Year 1 deduction: $75,000
Tax savings (21% rate): $15,750

Option B: 100% Bonus Depreciation

Bonus depreciation: $75,000 (100%)
Year 1 deduction: $75,000
Tax savings: $15,750

Option C: MACRS Only (no Section 179 or bonus)

Year 1: $75,000 × 20% = $15,000
Year 2: $75,000 × 32% = $24,000
Year 3: $75,000 × 19.2% = $14,400
Year 4: $75,000 × 11.52% = $8,640
Year 5: $75,000 × 11.52% = $8,640
Year 6: $75,000 × 5.76% = $4,320

NPV of Tax Savings (10% discount rate, 21% tax rate):

Options A/B: $15,750 (immediate)
Option C: $12,876

The accelerated methods provide $2,874 more value in present terms.

Scenario 2: UK Manufacturing Machinery

Profile: UK limited company purchases £250,000 CNC machine in July 2026.

Full Expensing Approach:

Year 1 allowance: £250,000 (100%)
Corporation tax savings (25%): £62,500
Immediate cash flow benefit

Alternative: AIA if Full Expensing Unavailable:

AIA claim: £250,000 (within £1m limit)
Same result: £62,500 tax savings in Year 1

For a Partnership (Full Expensing Not Available):

AIA claim: £250,000
Tax savings depend on partners' marginal rates
Higher-rate partners (45%): up to £112,500 combined savings

Scenario 3: Commercial Vehicle Fleet

Profile: Transport company acquires five delivery trucks at $60,000 each ($300,000 total) in 2026. Trucks are 5-year MACRS property.

With 100% Bonus Depreciation:

Year 1 deduction: $300,000
Tax savings (21%): $63,000

Without Bonus (MACRS only):

| Year | MACRS % | Depreciation | Tax Savings | |------|---------|--------------|-------------| | 1 | 20.00% | $60,000 | $12,600 | | 2 | 32.00% | $96,000 | $20,160 | | 3 | 19.20% | $57,600 | $12,096 | | 4 | 11.52% | $34,560 | $7,258 | | 5 | 11.52% | $34,560 | $7,258 | | 6 | 5.76% | $17,280 | $3,629 |

NPV comparison (10% discount rate): Bonus depreciation provides approximately $8,500 more value than standard MACRS.

Vehicle Depreciation in the Real World

Vehicle depreciation affects both business tax planning and personal financial decisions. Recent market data reveals significant variation by vehicle type.

Average Depreciation Rates

Vehicles typically lose 20% or more of their value in the first year, with approximately 60% depreciation over five years. However, market conditions have created substantial variation:

2025 Depreciation by Vehicle Segment:

| Segment | Average 5-Year Depreciation | |---------|----------------------------:| | Electric vehicles (premium) | 60-72% | | Luxury sedans | 55-65% | | Full-size vans | 50-60% | | Mid-size sedans | 45-55% | | Compact SUVs | 40-50% | | Small pickups | 35-45% | | Toyota/Lexus (overall) | 35-45% |

Electric Vehicle Depreciation Challenge

Electric vehicles have experienced the fastest depreciation in recent years:

Jaguar I-Pace: 72.2% depreciation over 5 years (average loss of $51,953)
Tesla Model S: 61.5% depreciation (average loss of $74,132)
Tesla Model X: 55.2% depreciation (average loss of $71,792)
Audi e-tron: 66% depreciation over 3 years

Contributing factors include Tesla's aggressive price reductions on new vehicles, concerns about battery longevity and replacement costs, rapidly evolving technology making older models less desirable, and charging infrastructure uncertainty.

Vehicles That Hold Value

Toyota and Lexus consistently demonstrate the slowest depreciation. Trucks and hybrid vehicles maintain value better than sedans and EVs. Factors supporting value retention include:

Proven reliability and low maintenance costs
Strong brand perception
Limited supply relative to demand
Practical utility (trucks, SUVs)

Business Vehicle Depreciation Limits (US)

Passenger automobiles face annual depreciation caps under Section 280F:

2026 Depreciation Limits (Passenger Auto):

| Year | With Bonus | Without Bonus | |------|------------|---------------| | 1 | $20,400 | $12,400 | | 2 | $19,800 | $19,800 | | 3 | $11,900 | $11,900 | | 4+ | $7,160 | $7,160 |

Vehicles weighing over 6,000 pounds (heavy SUVs, trucks) are not subject to these limitations under the SUV exception.

Limitations and Professional Considerations

When Book and Tax Depreciation Differ

Companies frequently maintain separate depreciation schedules:

Book Depreciation (Financial Reporting):

Aims for accurate representation of asset consumption
Uses estimated useful lives based on actual expected use
Includes salvage value in calculations
Follows GAAP or IFRS standards

Tax Depreciation:

Optimises cash flow through accelerated deductions
Uses statutory recovery periods (MACRS, capital allowances)
Often assumes zero salvage value
Follows tax code requirements

The difference creates "temporary differences" for deferred tax accounting—book-tax reconciliation is required.

Impairment vs. Depreciation

Impairment occurs when an asset's market value falls below its book value due to damage, obsolescence or market conditions. Unlike regular depreciation, impairment is recognised as a one-time charge when triggered, not scheduled over the asset's life.

Component Depreciation

Large assets with components having different useful lives may require component depreciation. A building with 40-year life may contain HVAC equipment (15 years), roofing (20 years) and electrical systems (25 years). Each component depreciates according to its individual life.

Records and Documentation

Maintain comprehensive records for each depreciable asset:

Purchase documentation and capitalised costs
Useful life determination and rationale
Salvage value estimates and supporting analysis
Annual depreciation schedules
Method selection justification
Disposal documentation and gain/loss calculations

Sources

FAQs

What is the difference between depreciation and amortisation?

Depreciation applies to tangible assets (equipment, buildings, vehicles). Amortisation applies to intangible assets (patents, software, goodwill). Both spread cost over useful life, but different accounting standards may apply.

Can I depreciate a personal vehicle?

Only the business-use percentage is depreciable. A vehicle used 60% for business allows depreciation on 60% of its cost. Personal-use vehicles cannot be depreciated for tax purposes.

What happens when I sell an asset before it is fully depreciated?

Compare sale price to book value (cost minus accumulated depreciation). If sale price exceeds book value, the difference is a taxable gain. If sale price is less, the difference is a deductible loss.

Is depreciation a cash expense?

No. Depreciation reduces reported income and taxes without requiring cash outflow beyond the original purchase. The depreciation tax shield provides real cash benefits—lower taxes payable—but depreciation itself involves no cash movement.

How do I choose between Section 179 and bonus depreciation?

Section 179 is limited to taxable income—it cannot create a loss. Bonus depreciation has no income limitation and can create or increase net operating losses. Profitable businesses with targeted asset purchases often prefer Section 179; those with significant capital expenditure or loss positions may benefit more from bonus depreciation.

What is the UK Annual Investment Allowance limit?

The AIA is permanently set at £1,000,000 per year, covering plant and machinery, integral features and long-life assets (but not cars). This provides immediate tax relief similar to Section 179 in the US.

Can a sole trader claim full expensing in the UK?

No. Full expensing (100% FYA) is available only to companies within corporation tax. Sole traders and partnerships can claim the £1,000,000 AIA and the new 40% first-year allowance from April 2026.

What are MACRS recovery periods?

MACRS assigns assets to property classes with statutory recovery periods: 5 years (computers, vehicles), 7 years (office furniture, machinery), 15 years (land improvements), 27.5 years (residential rental), 39 years (commercial buildings). These override actual useful life for tax purposes.

Why do electric vehicles depreciate so quickly?

EV depreciation reflects manufacturer price reductions (especially Tesla), battery technology concerns, rapidly evolving technology making older models less desirable, and uncertainty about charging infrastructure. Premium EVs have lost 60-72% of value over five years.

What records should I maintain for depreciation?

Keep purchase documentation, useful life determination rationale, salvage value estimates, annual depreciation schedules, method selection justification, and disposal records. These support tax filings and audit defence.

Depreciation Calculator — Asset Value Decline Calculator

📊Depreciation Methods

🏢Common Asset Categories

💰Tax Benefits & Considerations