How to Do Double Declining Balance: Rate, Formula, and Examples

To do double declining balance depreciation, take the straight-line rate for the asset (1 divided by its useful life), double it, and apply that percentage to the asset’s remaining book value at the start of each year. The deduction shrinks each year because the book value it’s calculated against shrinks. You stop when book value hits salvage, or switch to straight-line once that method produces the larger deduction. Under the federal tax code, this accelerated method is the default for most business equipment through the Modified Accelerated Cost Recovery System (MACRS).

Three Inputs You Need First

Every schedule starts with the same three numbers.

Total cost. The full purchase price plus everything you spent getting the asset working: shipping, delivery, sales tax, and installation. Pull it from your invoice or bank settlement statement.
Useful life. For tax purposes, IRS Publication 946 assigns each type of property to a recovery class. Computers and office machinery fall into the five-year class; desks, filing cabinets, and other office furniture go into the seven-year class. For financial statements, your company picks an estimate based on how long the asset will actually serve the business.¹
Salvage value. What you expect the asset to be worth at the end of its useful life. For book depreciation under GAAP, salvage is a floor: you stop depreciating once book value reaches it. For MACRS tax depreciation, the IRS treats salvage value as zero, so you depreciate the entire cost.²

That salvage distinction trips up a lot of people. If you’re preparing a tax return, ignore salvage. If you’re preparing internal financial statements, estimate it and use it as a floor.

Finding the Rate

Divide 1 by the useful life to get the straight-line rate, then double it.

Five-year asset: 1 ÷ 5 = 20%, doubled to 40%.
Seven-year asset: about 14.3%, doubled to roughly 28.6%.
Ten-year asset: 10%, doubled to 20%.

That fixed percentage is the multiplier you apply to the asset’s remaining book value every period.¹

Year-by-Year Calculation

Each year, multiply the rate against the current book value, not the original cost. Book value shrinks, so the depreciation amount shrinks with it.

Take a $30,000 piece of equipment with a five-year useful life and a $5,000 salvage value for book purposes. The rate is 40%.

Year 1: $30,000 × 40% = $12,000 depreciation. Book value drops to $18,000.
Year 2: $18,000 × 40% = $7,200 depreciation. Book value drops to $10,800.
Year 3: $10,800 × 40% = $4,320 depreciation. Book value drops to $6,480.
Year 4: The formula gives $6,480 × 40% = $2,592, but that would push book value to $3,888, below the $5,000 salvage floor. You take only $1,480 ($6,480 minus $5,000). Book value hits $5,000.
Year 5: $0. The asset already sits at salvage.

Total depreciation over the life: $25,000, which is the $30,000 cost minus $5,000 salvage. The total is the same as any other method would produce; DDB just pushes most of it into the early years.

Year 4 required a manual cap. You’ll hit this on almost every DDB schedule, because the formula alone never actually reaches zero. When the calculated amount would breach the salvage floor, record only the difference between current book value and salvage.¹

Switching to Straight-Line

Pure DDB eventually produces a smaller annual deduction than straight-line would on the remaining book value. Federal tax law requires you to switch: move to straight-line in the first year it gives an equal or larger deduction.²

To test each year, divide the current book value by the number of years remaining in the recovery period. If that number equals or exceeds the DDB amount, switch. For five-year MACRS property using the 200% declining balance method, the switch happens in year four. For seven-year property, year five. For ten-year property, year seven.¹

The MACRS percentage tables in IRS Publication 946 already bake in this crossover, so tax software applies the switch automatically. Knowing the logic lets you verify what the software produces and build a schedule from scratch when you need to.

Adjust the First Year for the Convention

For tax purposes, you almost never get a full year of depreciation in year one. MACRS applies a convention that decides how much of the first and last year counts.

The default is the half-year convention. No matter which month you place the asset in service, you treat it as starting at the midpoint of the year, so your year-one deduction is half the normal amount. Using the earlier example, year one becomes $6,000 rather than $12,000, and the schedule stretches into a sixth calendar year to capture the remaining half-year at the end.

An exception catches businesses off guard. If more than 40% of your total depreciable property for the year was placed in service during the last three months, you must use the mid-quarter convention instead.³ Under mid-quarter, each asset gets a first-year fraction based on when you placed it in service: 87.5% for the first quarter, 62.5% for the second, 37.5% for the third, and 12.5% for the fourth. A large piece of equipment bought in December can produce a much smaller first-year deduction than one bought in September.

If you’re planning a major purchase late in the year, check whether it will tip you over the 40% threshold. Spreading purchases across quarters, or moving a big acquisition into the third quarter, can shift your first-year write-off meaningfully.

Recording the Number

Once you’ve calculated the annual amount, two accounts move. Debit depreciation expense, which hits the income statement and reduces reported profit for the period. Credit accumulated depreciation, a contra-asset account that tracks how much value the asset has lost since purchase.

The balance sheet then reports original cost minus accumulated depreciation, giving the net carrying amount that matters for loan covenants, insurance valuations, and capital planning. Original cost stays on the books untouched; accumulated depreciation does all the moving.

If you use DDB on your books but take Section 179 or bonus depreciation on your tax return, the two sets of records will show different depreciation amounts for the same asset. That divergence is normal.

When You Don’t Need DDB at All

Before building a multi-year schedule, check whether you can write off the entire cost in year one. Two provisions make that possible for most business equipment.

Section 179 lets you deduct the full purchase price of qualifying tangible property in the year you place it in service, up to $2,560,000 for 2026, with the deduction phasing out dollar-for-dollar once total equipment purchases exceed $4,090,000. The deduction is limited to your taxable income for the year, so it can’t create or increase a net loss.⁴

Bonus depreciation, restored to 100% on a permanent basis by the One Big Beautiful Bill Act for property acquired after January 19, 2025, allows you to deduct the entire cost of qualified property in the first year with no income limitation. Unlike Section 179, bonus depreciation can generate a net operating loss you carry to other tax years.⁵

The usual approach is to apply Section 179 first, then bonus depreciation to whatever eligible cost remains. If both provisions absorb the full cost, you never touch the DDB schedule. Double declining balance stays relevant when an asset doesn’t qualify for these first-year write-offs, when you’ve exceeded the Section 179 cap, or when you’re preparing financial statements under GAAP rather than a tax return.

1
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
2
Office of the Law Revision Counsel. 26 U.S. Code 168 – Accelerated Cost Recovery System
3
eCFR. 26 CFR 1.168(d)-1 – Applicable Conventions, Half-Year and Mid-Quarter Conventions
4
Office of the Law Revision Counsel. 26 U.S. Code 179 – Election to Expense Certain Depreciable Business Assets
5
Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One, Big, Beautiful Bill