What is depreciation?

Depreciation is the process of allocating the cost of a tangible asset over its useful life. It represents how much of an asset's value has been used up. For businesses, it is an expense that reduces taxable income.

Can I depreciate land?

No. Land is considered to have an indefinite useful life and does not wear out, become obsolete, or get used up. However, improvements to the land (like fences, roads, or buildings) can be depreciated.

What is Salvage Value?

Salvage Value (or Residual Value) is the estimated amount that an asset is worth at the end of its useful life. When calculating depreciation (especially Straight Line), you typically subtract the salvage value from the cost before dividing by the useful life. Note: For tax purposes (like MACRS in the US), salvage value is usually ignored (treated as $0).

What is the difference between Depreciation and Amortization?

They are conceptually the same, but apply to different types of assets. Depreciation is for Tangible Assets (Cars, Buildings, Machinery). Amortization is for Intangible Assets (Patents, Copyrights, Software, Goodwill).

What is Bonus Depreciation?

Bonus Depreciation (in the US) allows businesses to deduct a large percentage of the cost of eligible property in the first year it is placed in service. This is a tax incentive to encourage business investment. The percentage is phasing down: 2023: 80%, 2024: 60%, 2025: 40%, 2026: 20%, 2027+: 0% (unless Congress extends).

How do I choose a depreciation method?

For Tax Reporting, you must follow the laws of your country (e.g., MACRS for US IRS). For Internal Books, choose a method that mirrors the asset's usage: use Straight Line for assets that provide steady value (furniture, housing), and Double Declining for assets that lose value quickly (computers, cars).

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Frequently Asked Questions

Common questions about depreciation calculation, tax rules, and asset value.

Last updated: January 2026. Tax laws change - consult a qualified professional.