When purchasing fixed assets like buildings (not land), vehicles, equipment and machinery it’s important to determine what method of depreciation should be used as a tax deduction. The straight-line depreciation method is the most common method used. Accelerated depreciation can be especially useful when an asset creates more income early its useful life. Using this method can help offset some the extra income with tax deduction generated early on in the assets life.
Double Declining Balance Method of Accelerated Depreciation
This method will give a larger depreciation in the early years than the sum of the digits method of depreciation. The double declining balance method is used like the straight-line method expect that the first year's depreciation is double the percentage of the straight-line method. Each additional year in the life of the asset is multiplied by the same percentage of the remaining depreciation. Once the depreciation amount per year is less than the amount used by the straight-line method, the straight-line yearly depreciation is then used.
