Straight-line depreciation allocates asset cost evenly over time. Learn the formula, partial-year rules, MACRS uses, examples, and California differences.
Straight-line depreciation allocates an asset's depreciable amount evenly over its useful life or prescribed tax recovery period. It is widely used for book accounting because it is simple and appropriate when an asset is expected to provide benefits relatively evenly. Federal tax law also requires or permits straight line for specified property and elections.
"Evenly" does not always mean the same deduction in every calendar year. Partial-year book policies and federal half-year, mid-quarter, or mid-month conventions can change the first and final years.
For a common book calculation:
(Asset cost − estimated residual value) ÷ useful life = annual depreciation
Coastal's machine costs $42,000, has no estimated residual value, and has a six-year book useful life:
($42,000 − $0) ÷ 6 = $7,000 per full year
| End of year | Annual depreciation | Accumulated depreciation | Net book value |
|---|---|---|---|
| 1 | $7,000 | $7,000 | $35,000 |
| 2 | $7,000 | $14,000 | $28,000 |
| 3 | $7,000 | $21,000 | $21,000 |
| 6 (fully depreciated) | $7,000 | $42,000 | $0 |
These figures allocate historical cost; they do not claim the machine is worth exactly $21,000 in the market after year three.
A business should adopt and consistently apply a reasonable book policy for assets placed in service or disposed of during a period. Depending on its reporting framework and materiality, it may calculate depreciation by day or month or use a consistent simplifying convention.
Federal tax depreciation does not simply copy that policy. MACRS uses statutory conventions. Residential rental and nonresidential real property generally use straight line with the mid-month convention, so the first and final years are partial. ADS property generally uses straight line with the applicable recovery period and convention.
MACRS is a system, while straight line is a depreciation method within that system. Under GDS, residential rental property is generally depreciated over 27.5 years and nonresidential real property over 39 years using straight line and the mid-month convention. Certain personal property may use an accelerated declining-balance method unless the taxpayer elects straight line for the class.
Under ADS, straight line generally applies over the ADS recovery period. A taxpayer may be required to use ADS or may make an election where permitted. Because the election can affect an entire property class and future years, it should be documented carefully.
Straight line generally spreads deductions more evenly. Accelerated depreciation assigns more cost to earlier years and less to later years. Both methods can ultimately recover the same depreciable basis when all rules and limitations are ignored, but the timing affects taxable income, cash taxes, financial ratios, and later adjusted basis.
For books, straight line can be appropriate when benefits are consumed evenly and a more complex pattern is not justified. It supports predictable expense recognition, budgeting, job-costing, and replacement planning.
For tax, straight line can be required by the asset or ADS rules, or elected in specified situations. A slower current deduction can sometimes be intentional — for example, when preserving deductions for later years is more valuable — but elections, passive losses, taxable income, credits, state rules, and anticipated dispositions all need review.
Tax strategy should not focus only on maximizing the current deduction. Earlier depreciation reduces basis sooner and may affect later recapture or gain.
An improvement may be a new depreciable asset with its own in-service date and life rather than an increase to the old schedule without analysis. Repairs may be currently deductible if they do not have to be capitalized. When an asset is disposed of, depreciation stops according to the applicable book policy or tax convention, and cost plus accumulated depreciation must be removed from the books.
If the book useful-life estimate changes, remaining net book value is generally allocated prospectively under the applicable accounting policy. Changing a federal tax method may require consent rather than a casual spreadsheet revision.
California may use straight line or other depreciation calculations that differ from federal amounts because it does not conform to federal bonus depreciation and differs on other provisions. For an eligible asset fully deducted federally through bonus depreciation, California may continue recognizing depreciation over its state recovery period.
Maintain separate federal and California adjusted basis. The eventual sale can produce different state and federal gain calculations because prior depreciation differed.
Heath Income Tax can help compare book straight-line depreciation with federal and California tax schedules.
Is straight-line depreciation allowed for taxes?
Yes. It is required for certain property and ADS, and it may be elected in some situations. The correct recovery period and convention still apply.
Does straight line include salvage value under MACRS?
MACRS generally does not subtract salvage value in the same manner as a book straight-line estimate. Do not mix the two formulas.
Is straight line better than bonus depreciation?
They serve different purposes. Straight line spreads basis; bonus depreciation accelerates eligible federal basis. The better tax result depends on the taxpayer's facts and state treatment.
The definitions and examples on this page are for informational purposes only and do not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a qualified tax professional before making decisions based on this content.
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