Depreciation Schedule: Straight-Line, Double-Declining Balance and MACRS Compared

Most clients keep two depreciation schedules, whether or not they know it. The books follow GAAP, where depreciation allocates cost over the asset's useful life. The tax return follows the Internal Revenue Code, where recovery periods, methods and conventions are prescribed. The difference between the two creates deferred taxes and a recurring audit test.

This guide shows how each method works, builds one asset through all three, and covers what an auditor recomputes. For capitalization policy and disposals see the PP&E guide. For a calculator see the depreciation calculator.

What does a depreciation schedule contain?

A schedule lists, for each asset or pool: description, acquisition and in-service dates, cost, useful life or recovery period, salvage value for book purposes, method, convention, depreciation for the year, accumulated depreciation and net book value. The total of each column agrees to the general ledger and to the fixed asset rollforward. See the fixed asset rollforward template and the rollforward calculator.

GAAP depreciation: straight-line and accelerated

Under GAAP the method must allocate cost, less salvage value, over the estimated useful life in a systematic and rational pattern that reflects how the asset's benefits are consumed. Management chooses the method and the useful life. A change in estimated life or salvage value is a change in accounting estimate applied prospectively. See change in accounting principle vs estimate.

• Straight-line. (Cost − salvage) ÷ useful life, the same amount each year. It is the most common method.
• Double-declining balance (DDB). Rate = 2 ÷ useful life, applied to the opening net book value each year. Salvage value is not subtracted before applying the rate, but the asset is never depreciated below salvage value. Some schedules switch to straight-line when it produces a larger amount.
• Units of production. Cost less salvage, divided by total expected units, times units used. Suitable where usage varies.

Tax depreciation: MACRS

For federal income tax, most tangible property is depreciated under the Modified Accelerated Cost Recovery System. IRS Publication 946 describes the rules. Under the general depreciation system (GDS):

• 3-, 5-, 7- and 10-year property uses the 200% declining balance method, switching to straight-line when that gives a larger deduction. 15- and 20-year property uses the 150% declining balance method. Nonresidential real property and residential rental property use straight-line.
• The half-year convention treats property as placed in service at the midpoint of the tax year. It applies unless the mid-quarter or mid-month convention applies.
• The mid-quarter convention applies when the depreciable basis of property placed in service in the last three months of the year is more than 40% of the total basis of all MACRS property placed in service during the year, excluding real property and certain other items.
• The mid-month convention applies to nonresidential real property and residential rental property.
• Taxpayers can use the IRS percentage tables in Publication 946 rather than computing each year.

In addition, the Code permits a section 179 deduction and special (bonus) depreciation for qualifying property. Publication 946 for 2025 returns states that the maximum section 179 deduction for tax years beginning in 2025 is $2,500,000, reduced dollar for dollar by the cost of section 179 property placed in service above $4,000,000, and that a 100% special depreciation allowance applies to certain qualified property acquired and placed in service after January 19, 2025, unless the taxpayer elects out or chooses the alternative 40% allowance for the first tax year ending after that date. These amounts and rules change by tax year, so use the publication for the year of the return.

Worked example (illustrative): one asset, three methods

A client buys equipment on January 2, 2026 for $50,000. It has a five-year book life and an estimated salvage value of $5,000. For tax it is 5-year MACRS property placed in service under the half-year convention, with no section 179 or bonus election.

Straight-line (book). (50,000 − 5,000) ÷ 5 = $9,000 a year.

Double-declining balance (book alternative). The rate is 2 ÷ 5 = 40%.

In 2029, straight-line on the remaining depreciable amount would be (10,800 − 5,000) ÷ 2 = $2,900, which is less than $4,320, so no switch. In 2030, 40% of 6,480 is 2,592, but only $1,480 is available before reaching the $5,000 salvage value.

MACRS (tax), 5-year, half-year convention. Percentages from the Publication 946 table: 20.00%, 32.00%, 19.20%, 11.52%, 11.52% and 5.76%. Salvage value is ignored for tax.

Book versus tax with straight-line for book. At the end of 2026, tax depreciation of $10,000 exceeds book depreciation of $9,000 by $1,000. At the end of 2027, the cumulative difference is (10,000 + 16,000) − (9,000 + 9,000) = $8,000. At an illustrative 25% rate, the deferred tax liability for this asset is $250 at the end of 2026 and $2,000 at the end of 2027, and it reverses over the following years. See deferred tax assets and liabilities and book-tax differences.

What an auditor recomputes

• Agree the schedule to the ledger. Cost, accumulated depreciation and expense must tie to the trial balance and the prior-year audited balances.
• Test additions. Vouch to invoices and evidence of receipt, and test the capitalize versus expense decision. See capitalization vs expensing and the fixed asset additions testing workpaper.
• Recompute depreciation for a sample or all assets using the stated life, salvage value, method and in-service date. Check partial-year treatment against the client's policy.
• Test disposals to proceeds and recompute gain or loss, and confirm that depreciation stops at the disposal date.
• Evaluate the useful lives and salvage values for reasonableness against use, history and industry experience.
• Consider impairment indicators under ASC 360. See long-lived asset impairment.
• Reconcile book and tax. The difference should agree to the deferred tax balance in the provision. See the fixed assets audit program.

Common errors in schedules

• Depreciation continuing after disposal, or starting before the asset is in service.
• Land depreciated.
• A mid-quarter convention required for tax but not applied.
• Salvage value subtracted before applying the DDB rate.
• Useful life changed without disclosure or documentation of the estimate.
• Tax schedule not rolled forward for section 179 or bonus elections made in prior returns.
• Capitalized repairs that should have been expensed, or the reverse.

Frequently asked questions

What is the difference between book and tax depreciation?

Book depreciation follows GAAP and the estimated useful life of the asset. Tax depreciation follows the Code, usually MACRS, with prescribed recovery periods and conventions. The difference creates deferred taxes.

Does MACRS use salvage value?

No. MACRS depreciates the full depreciable basis and ignores salvage value.

What is the half-year convention?

A convention treating property as placed in service at the midpoint of the tax year, so that a half year of depreciation is allowed in the first year. It applies unless the mid-quarter or mid-month convention applies.

Can a company use DDB for books and MACRS for tax?

Yes. GAAP allows any systematic and rational method. Using different methods for book and tax is common and creates a temporary difference.

Sources

• IRS, Publication 946, How To Depreciate Property (for 2025 returns): https://www.irs.gov/pub/irs-pdf/p946.pdf
• FASB, ASC 360-10-35, Property, Plant, and Equipment, Subsequent Measurement
• FASB, ASC 250, Accounting Changes and Error Corrections (change in estimate)
• FASB, ASC 740, Income Taxes, on deferred taxes from temporary differences

CORAA prepares ready-to-review audit files for US CPA firms from QuickBooks books; you review and sign. See /us.

AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error