Long-lived assets are the resources a business owns and uses in its operations for more than one year instead of selling them to customers. They sit in the non-current section of the balance sheet and include everything from land and buildings to patents and leased office space. Because their economic value is used up gradually, most of them are expensed a piece at a time through depreciation or amortization rather than deducted all at once. How a company classifies, records, and reports these assets shapes its financial statements, its tax bill, and the way lenders and investors read its long-term position.
Tangible Long-Lived Assets
Tangible long-lived assets have a physical form. Accountants group most of them under “property, plant, and equipment,” which covers land, office buildings, manufacturing plants, warehouses, heavy machinery, delivery trucks, and office furniture. Their value comes from a direct role in daily operations: a truck moves products, a factory produces them, and furniture supports the people running both.
Physical assets wear out, break down, or become outdated as newer technology arrives. Vehicles accumulate mileage, roofing deteriorates, and production equipment loses efficiency. That gradual decline is why businesses depreciate most tangible assets, spreading the original cost across the years the asset is expected to remain productive. Land is the critical exception. Because it does not wear out or become obsolete, it is never depreciated.1Internal Revenue Service. Topic No 704, Depreciation It stays on the books at its original cost unless the company sells it or writes it down for impairment.
Intangible Long-Lived Assets
Intangible long-lived assets lack a physical form but still deliver real economic value, usually through legal rights that keep competitors from copying a company’s ideas, brand, or creative work. The most common are patents, trademarks, copyrights, and goodwill. Whether one is amortized depends on whether it has a set useful life.
Finite-Life Intangibles
Some intangibles come with a built-in expiration. A utility or plant patent generally lasts 20 years from the date the application was filed, and it gives the holder the right to exclude others from making, using, or selling the invention rather than a blanket right to produce it.2U.S. Patent and Trademark Office. Managing a Patent Copyrights on works created after January 1, 1978 last for the author’s life plus 70 years, or 95 years from publication for works made for hire.3U.S. Copyright Office. How Long Does Copyright Protection Last Because the useful life is known, these assets are amortized. The cost is spread over that period, evenly or in the pattern the benefits are consumed, much like depreciating equipment.
Indefinite-Life Intangibles
Other intangibles have no foreseeable end. A federal trademark registration runs for an initial 10 years and can be renewed every 10 years indefinitely, as long as the owner files the required maintenance documents and keeps using the mark in commerce.4U.S. Patent and Trademark Office. Maintaining Your Federal Registration Because a well-maintained trademark can last forever, it is treated as an indefinite-life intangible and is not amortized.
Goodwill, the premium a buyer pays above the fair value of a company’s identifiable assets during an acquisition, is also indefinite-life. Instead of being amortized, it is tested for impairment at least annually.5FASB. Goodwill Impairment Testing If the reporting unit that carries the goodwill falls below its carrying amount, the company writes goodwill down. The finite vs. indefinite distinction matters in practice because it decides whether you amortize every year or simply test for impairment.
Right-of-Use Assets From Leases
Not every long-lived asset is owned outright. Under current lease accounting rules (ASC 842), a business that leases equipment, vehicles, or office space for more than 12 months must put a right-of-use asset and a corresponding lease liability on its balance sheet.6FASB. Accounting Standards Update No 2016-02, Leases (Topic 842) The right-of-use asset represents the lessee’s right to control and use the property over the lease term.
The initial cost equals the lease liability plus any upfront direct costs and prepaid lease payments, minus any lease incentives from the lessor. Finance leases amortize the asset on a straight-line basis over the shorter of its useful life or the lease term. Operating leases follow a similar pattern but recognize a single lease cost each period that blends amortization with interest. Because these assets now appear on the balance sheet, readers see the full scope of a company’s long-term resource commitments and not just what it owns.
Recording the Cost of a Long-Lived Asset
When a company buys a long-lived asset, it does not simply record the sticker price. The capitalized cost includes every expense needed to get the asset to its location and into the condition required for use: purchase price, shipping, handling, installation, and other preparation costs.7Internal Revenue Service. 1.35.6 Property and Equipment Accounting Buy a $40,000 machine, spend $3,000 on delivery and $2,000 on installation, and the capitalized cost is $45,000.
Two more figures are needed before the cost can be spread over time. The first is the estimated useful life, drawn from manufacturer guidelines, industry norms, or experience with similar equipment. The second is the salvage value, the amount the company expects to recover when it eventually sells or scraps the asset. Cost, useful life, and salvage value are the three inputs behind every depreciation and amortization calculation.
Companies also set capitalization thresholds, minimum dollar amounts a purchase must meet to qualify as a long-lived asset rather than a current-period expense. Thresholds vary. A small business might capitalize anything over $2,500; a large corporation or government agency may set the bar at $5,000 or higher. Items below the threshold are expensed immediately even if they last more than a year. Routine repairs and maintenance are always expensed, regardless of cost, because they maintain an asset’s current condition rather than extending its life or improving its capacity.
Methods for Spreading Cost Over Time
Once cost, useful life, and salvage value are set, the company begins spreading the cost across the service period. For tangible assets this is depreciation; for intangibles it is amortization. The goal in both cases is to match the asset’s cost to the revenue it helps generate each year.
Straight-Line
The straight-line method is the simplest and most widely used. Subtract salvage value from original cost and divide by the years of useful life.8Internal Revenue Service. Publication 946, How To Depreciate Property The expense is the same every year, which suits assets that deliver roughly consistent benefit throughout their life. A $45,000 machine with a $5,000 salvage value and a 10-year useful life produces $4,000 of depreciation annually.
Accelerated Methods
Accelerated methods, such as declining-balance, assign more cost to the early years and less to the later ones. This reflects the reality that certain equipment is more productive, or needs less maintenance, when new. A company using double-declining-balance applies twice the straight-line rate to the asset’s remaining book value each year, producing a front-loaded expense pattern. Accelerated depreciation reduces reported profits in the early years and lifts them later as the annual charge shrinks.
Units-of-Production
The units-of-production method ties depreciation to how much the asset is used rather than how long it has been in service. Divide depreciable cost (original cost minus salvage value) by the total expected output over the asset’s lifetime to get a per-unit rate, then multiply that rate by actual units produced or hours used in the period. It fits manufacturing equipment or vehicles where wear is driven by output.
Whichever method a company selects, it must apply it consistently from year to year. Switching mid-stream without justification can distort results and raise audit questions. And no method changes the treatment of land, which stays on the balance sheet at original cost with no depreciation.
Tax Depreciation Is a Separate Track
What a company uses for its financial statements often differs from what the tax code requires or allows. For federal income tax, most tangible business property is depreciated under the Modified Accelerated Cost Recovery System (MACRS). MACRS assigns each type of property to a recovery period, and the IRS publishes percentage tables that determine the annual deduction.8Internal Revenue Service. Publication 946, How To Depreciate Property
Common MACRS recovery periods include:
- 5-year property: automobiles, light trucks, computers, office machinery, and research equipment
- 7-year property: office furniture, fixtures, and property without a designated class life
- 15-year property: land improvements such as fences, roads, sidewalks, and qualified improvement property
- 27.5-year property: residential rental buildings
- 39-year property: nonresidential real property such as office buildings, stores, and warehouses
Section 179
Rather than spreading cost over several years, the Section 179 deduction lets a business write off the full purchase price of qualifying equipment and software in the year it is placed in service. For 2026, the maximum Section 179 deduction is $2,560,000, and it phases out dollar-for-dollar once total qualifying property placed in service exceeds $4,090,000. Small and mid-sized businesses often use it to recover equipment costs immediately instead of waiting years.
Bonus Depreciation
The One, Big, Beautiful Bill restored 100 percent bonus depreciation for qualifying property acquired and placed in service after January 19, 2025.9Internal Revenue Service. One Big Beautiful Bill Provisions Businesses can deduct the entire cost of eligible equipment, machinery, and certain other property in the first year. A taxpayer who prefers not to take the full deduction may elect a reduced percentage of 40 percent, or 60 percent for property with longer production periods and certain aircraft.10Internal Revenue Service. Treasury, IRS Issue Guidance on the Additional First Year Depreciation Deduction Amended as Part of the One Big Beautiful Bill
Because tax depreciation and book depreciation often follow different timelines, taxable income and financial-statement income can diverge significantly in a given year. A business that expenses a piece of equipment under Section 179 for tax purposes may still depreciate it over seven years on its income statement. That gap creates temporary differences, tracked and reconciled through deferred tax accounting.
How Long-Lived Assets Appear on Financial Statements
Long-lived assets appear in the non-current section of the balance sheet at net book value, also called carrying amount: original cost minus all accumulated depreciation or amortization to date. That figure shows how much of the original investment has not yet been expensed. It is not an estimate of what the asset could sell for on the open market.
Footnote disclosures fill in the detail. They break totals down by category (land, buildings, machinery, vehicles) and list the depreciation methods and useful lives applied to each class, so investors, lenders, and auditors can assess the age and condition of the assets supporting the business. Many companies also include a roll-forward schedule, which shows the opening balance for each asset class, adds acquisitions, subtracts disposals, records depreciation, notes any impairment write-downs, and arrives at the closing balance.
Estimates of useful life or salvage value sometimes change. A machine expected to last 10 years may prove durable enough for 15, or a technology shift may shorten its remaining life. When that happens, the company adjusts depreciation going forward rather than restating prior years. The remaining book value is simply spread over the revised remaining useful life.
Impairment: When Value Drops Suddenly
Normal depreciation assumes value declines gradually. Impairment addresses the possibility that an asset’s value has dropped suddenly and significantly, below even its depreciated book value. Under ASC 360-10, a company must test a long-lived asset for impairment whenever certain triggering events occur.
Common triggering events include:
- A significant decrease in the asset’s market value
- A change in how the asset is used, less intensive use, or physical damage
- An adverse business or legal climate, including regulatory changes, new competition, or an unfavorable legal ruling
- Construction or acquisition costs that significantly exceed the original budget
- Current-period operating losses combined with a history or forecast of continued losses tied to the asset
When a triggering event occurs, the company runs a recoverability test. It compares the total undiscounted future cash flows expected from using and eventually disposing of the asset to the asset’s current book value. If those cash flows exceed book value, the asset passes and no write-down is needed. If they fall short, the company moves to measuring the loss, which equals the difference between book value and fair market value. The asset is written down to fair value, the difference is recorded as a loss on the income statement, and the new lower value becomes the basis for future depreciation. Under U.S. accounting rules, the write-down on assets held and used is permanent. Even if value later recovers, the company cannot reverse the impairment loss.
Selling or Scrapping the Asset
When a company sells, scraps, or otherwise disposes of a long-lived asset, it removes the asset and its accumulated depreciation from the books and recognizes any gain or loss. Subtract net book value at the time of disposal from the proceeds. If proceeds exceed book value, the company records a gain; if they fall short, a loss.
For tax purposes, selling a depreciated asset can trigger depreciation recapture. If tangible personal property such as equipment or vehicles sells for more than its depreciated tax basis, the gain attributable to previously claimed depreciation is taxed as ordinary income rather than at the lower capital gains rate.8Internal Revenue Service. Publication 946, How To Depreciate Property Recapture also reaches any Section 179 deductions or bonus depreciation previously claimed on the property. The rule ensures the tax benefit received from accelerated deductions is partially returned when the asset sells at a profit, so total tax savings over the asset’s life track the actual economic loss rather than the front-loaded write-off.