Depreciation

What is depreciation?

Depreciation reflects how assets lose value over time. A $30,000 work truck isn't worth $30,000 after five years of use—it's worth less due to wear and age. Depreciation spreads the cost of that asset over its useful life rather than counting the entire expense in the year you bought it.

For tax purposes, depreciation lets you deduct the cost of major purchases over several years.

How depreciation works

Common depreciation methods:

• Straight-line — Equal amounts each year (cost ÷ useful life)
• Accelerated — More depreciation in early years, less later
• Section 179 — Deduct the full cost in the year of purchase (subject to limits)

What can be depreciated

Assets with a useful life over one year can typically be depreciated: vehicles, equipment, tools, computers, furniture, and buildings (not land). Small tools and supplies are usually expensed immediately rather than depreciated.