Basis includes capitalized costs
Purchase price and eligible improvements form the starting asset basis, while deductible repairs and operating costs are treated separately.
Book depreciation and disposal analysis
Follow asset basis from acquisition through sale
Compare four depreciation methods, handle partial first years and business use, estimate tax shields, and test book value, gain, and recapture exposure at disposal.
Plan with context
Depreciation allocates asset cost over use; the method controls timing, not economic reality.
A useful schedule starts with correct basis and salvage value, then connects annual expense, accumulated depreciation, remaining book value, business use, tax effects, and sale proceeds.
Salvage creates a floor
Book methods generally stop depreciation once the business-use book value reaches the modeled residual amount.
Straight-line smooths expense
An equal annual allocation is easy to explain and compare, but it may not resemble the asset’s actual loss in value.
Accelerated methods front-load expense
Declining balance and sum-of-years’ digits recognize more cost earlier, changing reported profit and the timing of any modeled tax shield.
Production methods follow use
Units-of-production connects depreciation to output, making estimates of lifetime and annual activity central to the schedule.
Disposal can create recapture
Selling above tax book value may produce depreciation recapture and additional gain; character and rates depend on asset and jurisdiction.
Included
Purchase cost, improvements, salvage, useful life, four methods, declining factor, partial first year, business use, production, tax shield, disposal year and price, gain, recapture exposure, Chart.js comparison, and annual ledger.
Not included
Jurisdiction-specific asset classes, MACRS tables, conventions, bonus depreciation, expensing elections, listed-property limits, component depreciation, impairment, exchange rules, or actual tax character.
Use it well
Reconcile basis to invoices, choose the method required by the reporting framework, document placed-in-service dates and business use, and model disposal before committing to a sale.