How depreciation is calculated
Straight-line expense equals cost minus salvage, divided by useful life. Double declining applies twice the straight-line percentage to opening book value, switching to straight-line remaining cost when that is larger.
Declining balance with a custom rate works the same way at any percentage of the straight-line rate; 150% is common. Sum-of-the-years' digits charges (cost − salvage) × remaining life ÷ the sum of the years' digits, so a 5-year asset takes 5/15, 4/15, 3/15, 2/15 and 1/15. Units of production charges (cost − salvage) ÷ total expected units for each unit actually produced.
Worked example
$30,000 cost less $3,000 salvage gives $27,000 depreciable cost. Straight-line allocation over five full years is $5,400 per year, ending at $3,000.
Partial first year, no switch and fixed percentage
Months in service in the first year prorate year 1 and add a final partial year. Straight line on $10,000 less $1,000 salvage over 5 years, placed in service for 6 months, gives $900, then $1,800 for four years, then $900. Sum-of-the-years' digits splits each SYD year across two fiscal years, and declining balance takes the months fraction of the first year's charge.
Declining-balance methods switch to straight line on the remaining cost when that is larger, so the asset reaches salvage by the end of its life. Choose 'No' to see a pure declining balance instead: 200% on $10,000 with no salvage gives $4,000, $2,400, $1,440, $864 and $518.40, leaving $777.60 undepreciated. Fixed-percentage declining balance picks the rate that lands exactly on salvage, 1 − (salvage ÷ cost)^(1 ÷ life): for $10,000, $1,000 and 5 years that is 36.90%, and book value after year k is 10,000 × 0.1^(k/5).
MACRS residential and nonresidential real property (tax)
The two MACRS options are tax depreciation under IRS Publication 946, separate from the book methods above. Residential rental property is recovered over 27.5 years and nonresidential real property over 39 years, straight line with the mid-month convention: the month placed in service counts as half a month, so year 1 takes (full months left in the year + ½) ÷ 12 of a full year. Salvage value is ignored and the basis excludes land.
Worked example: a $275,000 rental building placed in service in January takes 275,000 ÷ 27.5 × 11.5 ÷ 12 = $9,583.33 in year 1, $10,000 a year in years 2 to 27 and the remaining $5,416.67 in year 28. The calculator uses Pub 946's method for figuring the deduction without the percentage tables; the tables round each year's rate, so a table-based figure can differ by a few dollars.