Equipment depreciation per year: the short answer
Yearly equipment depreciation is the total cost less the anticipated salvage value, divided by the economic life in years. The published example divides a depreciable base of $48,000 by a life of five years to get an annual depreciation expense of $9,600, according to OpenStax . Your own figure uses your own total cost and your own salvage estimate, so the formula is the part to copy and the amounts are the part to replace.
Key takeaways: the figures that set a yearly expense
- you add sales tax and delivery to the purchase price before depreciating anything
- you subtract the anticipated salvage value to find the depreciable base
- you divide the depreciable base by the economic life in years
- you leave repair and maintenance bills out of the depreciable base
- you check the acquisition date against the special depreciation allowance cutoffs first
Each input in the steps below is tied to one published sentence from a named publisher, so you can see which source supports which number. Where a source covers a narrow setting, such as federal contract costs or one loan program, this article names that setting and does not apply it to your shop. Read the sources as reference points for your own books rather than as instructions for them.
Parts of the cost basis: what goes into the total
The cost basis is the total that the yearly calculation starts from. It is built from the purchase price plus the extra charges that appear on the same invoice. The first figure in this article comes from that total, and the figures after it use the total as their starting point, so an error here carries forward through the rest of the calculation.
Cost including tax and delivery
The depreciation calculation in the drill press example would be based on a cost of $22,000 plus $2,500 plus $800, for a total cost of $25,300, according to OpenStax . The example adds the sales taxes and the delivery and setup charge to the purchase price before any depreciation is calculated. Your invoice may show the same three kinds of amount, so add them together before you depreciate the equipment. For a related check on tax in a repair total, see Repair quote sales tax: 5 checks for the total . Write the price, the tax and the delivery or setup charge as separate lines first, then carry only the combined total forward.
A second OpenStax example, about a printing press, adds its own charges to the cost. Kenzie Company pays shipping costs of $1,500 and setup costs of $2,500, according to OpenStax . Those amounts sit on top of the purchase price, so the same addition step applies to your own invoice. Check the combined total against the invoice lines before you move on to the salvage figure.
Salvage value at end of life
The second figure is the salvage value, which the machine example describes as what the equipment is worth when its life ends. The same example says the machine can be used for five years or 100,000 presses, and that the machine will only be worth $1,000 at the end of its life, according to OpenStax . That wording puts the salvage figure at the end of the useful life, not at the purchase date.
The printing press example bases its salvage estimate on experience, with Kenzie Company anticipating a salvage value of $10,000, according to OpenStax . Your salvage figure is also an estimate, so write it beside the reason you chose it. A written reason lets a later review check the estimate against what actually happened to the equipment.
Straight-line formula: the published worked example
This section puts the inputs into the straight-line method that the OpenStax worked example uses. The example gives the same yearly amount for each year it covers, so one division produces the figure for every year. Keep the inputs in the same order as the earlier sections, so you can rebuild the figure from your own invoice without guessing at the sequence.
Economic life in years
The third figure is the economic life, and the worked example states it in years. The example divides the depreciable base by the economic life of five years, according to OpenStax . Write the life as a number of years before you divide, because the example uses years as its unit. If your own estimate is in a different unit, record it in years first.
Life estimates are the input most likely to be guessed, so note on the worksheet how you arrived at the number of years. A short note makes the estimate easier to revisit when the equipment's use changes. Keep the note with the invoice so both sit in one file.
Depreciable base after salvage
The depreciable base is the total cost less the anticipated salvage value. The OpenStax text shows this subtraction in an example where a business paid $50,000 for an asset and anticipated a salvage value of $10,000, which gives a depreciable base of $40,000, according to OpenStax . Use this subtraction to find the base for your own equipment.
The base is the amount you spread over the years of life, not the full invoice total. Write the base as its own line on your worksheet, so a change to the salvage estimate can be made without rewriting the cost.
Annual depreciation expense
The annual depreciation expense is the depreciable base divided by the economic life in years. A second straight-line calculation in the same text divides ($10,000 minus $1,000) by five and gives $1,800 per year for both years, according to OpenStax . The two calculations use different inputs, so compare each one with its own invoice rather than with the other.
Illustrative example: one machine's yearly figure
This example is illustrative only and uses invented amounts. A shop buys a machine for $10,000 in total cost and estimates a salvage value of $5,000 at the end of a five-year life.
- Depreciable base: $10,000 minus $5,000 gives $5,000. Annual depreciation expense: $5,000 divided by five years gives $1,000 per year.
Enter $10,000, $5,000 and five years on the worksheet, then record the $1,000 result with the date you calculated it.
Your own yearly figure: worksheet fields in order
Your worksheet should follow the order the earlier sections used, so each field uses the fields written above it. Working from top to bottom keeps the result traceable when someone reviews it later. The sections below describe each field and what to enter in it.
The top field is the total cost, and it holds one total rather than separate lines. You enter the price, the sales tax and the delivery and setup charge from one invoice, then carry the sum into the next field. A single invoice keeps the figure traceable to a document that can be found again.
The second field is the salvage value, and you enter it as an estimate with its reason beside it. The example's own salvage estimate rests on experience, according to OpenStax . A short plain-language note is enough.
The third field is the economic life in years. The worked example divides by years, according to OpenStax , so you enter the life as a number of years.
The fourth field is the depreciable base, which you find by subtracting the salvage value from the total cost. You enter the result on its own line so the base is visible before any division happens.
The bottom field is the annual depreciation expense, which is the base divided by the years. You divide once, enter the result, and note the date you calculated it.
What moves the number: dates, repairs and sales
The purchase date comes first, because the Form 4562 instructions set separate special depreciation allowance cutoffs. The instructions describe a phase down of the special depreciation allowance for certain qualified property acquired before January 20, 2025, according to Internal Revenue Service . You compare the purchase date on your invoice with that cutoff before you decide how the allowance applies to that piece of equipment.
The same instructions describe the special depreciation allowance for certain qualified property acquired after January 19, 2025, according to Internal Revenue Service . You then ask a tax preparer how the allowance applies to your return. This article does not work out a tax figure, so the tax preparer is the right person to confirm the treatment.
Repair and maintenance bills are a second item that changes the figure if they land in the wrong place. OpenStax says costs for maintaining or repairing the equipment would be treated as regular expenses, according to OpenStax . You keep those bills in your expense records, so the depreciable base stays at the equipment cost alone.
A sale raises a separate question, and the Acquisition.gov text on gains and losses covers federal contract costs. The gain or loss for each asset disposed of is the difference between the net amount realized, including insurance proceeds from involuntary conversions, and its undepreciated balance, according to Acquisition.gov . Track the accumulated depreciation on each piece of equipment so the undepreciated balance is available if the equipment is sold.
Equipment depreciation reference table: sources by publisher
The table below lists each publisher used in this article with the wording it supplies for the figures above.
| Publisher | Source | Quoted wording |
|---|---|---|
| OpenStax | Explain and Apply Depreciation Methods to Allocate Capitalized Costs | for a total cost of $25,300 |
| Internal Revenue Service | Instructions for Form 4562 (2025) | certain qualified property acquired before January 20, 2025 |
| Acquisition.gov | Gains and losses on disposition or impairment of depreciable property | is the difference between the net amount realized, including insurance proceeds from involuntary conversions, and its undepreciated balance |
Your next step
Your next step is to take the purchase invoice for one piece of shop equipment and write its price, sales tax and delivery as a single total cost before you change any overhead figure. For the overhead side, see Overhead per hour: 6 inputs to set before a job price .
FAQ
How is equipment depreciation per year worked out?
Divide the depreciable base, which is the total cost less the anticipated salvage value, by the economic life in years. Your figure uses your own total cost less your own salvage estimate, so swap in your invoice and estimate before you use the result. The method stays the same when the amounts change.
Does a repair bill go into the depreciable base?
No. Repair spending is treated as an expense in the worked example, according to OpenStax , so it is not added to the base. You record repair bills as expenses, separate from the equipment line on your worksheet.
When is a gain or loss on sold equipment recorded?
Gains and losses from the sale, retirement or other disposition are included in the year in which they occur, according to Acquisition.gov . That text covers federal contract costs, so it is a reference point rather than a booking rule for a repair shop. Measure the gain or loss against the undepreciated balance you have been tracking.
Does the straight-line result match my tax deduction?
Not necessarily. The OpenStax figures are worked examples from a financial accounting text, according to OpenStax , so ask a tax preparer how your return treats the straight-line result. The Form 4562 instructions describe the special depreciation allowance with cutoff dates, according to Internal Revenue Service .
Does every equipment purchase get the special depreciation allowance?
No, the Internal Revenue Service text describes the special depreciation allowance for certain qualified property, according to Internal Revenue Service , so that wording does not reach every purchase. The text lists cutoffs of January 20, 2025 and January 19, 2025, according to Internal Revenue Service . You check the acquisition date on your invoice, then ask a tax preparer how the allowance applies.