# Declining Balance Method of Depreciation

## Declining Balance Method

A way of calculating the depreciation of an asset whereby one subtracts a certain percentage of its current value each year. For example, suppose an asset costing \$100,000 depreciates 10% each year. After the first year, it depreciates to \$90,000. In the second year, one deducts 10% from the \$90,000, rather than the original \$100,000. Thus, the depreciated value after the second year is \$81,000. This is a common means of calculating depreciation.

## Declining Balance Method of Depreciation

An accelerated method of depreciation under which the depreciable basis for the following year is reduced by the depreciation deduction taken in the current year. The depreciation decution therefore decreases each year.
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For example, installed carpet purchased with a facility is considered personal property for depreciation purposes and recovered in a 5- or 7-year period using the 200% declining balance method of depreciation. Otherwise the carpet generally would be included in the value of the real property and the cost would be capitalized and recovered on a straight-line basis over 39 years.
The result of a typical study on an office building might identify 10%, or \$85,000, as land improvements, and another 15%, or \$127,500, as personal property qualifying for a 7-year recovery period and the 200% declining balance method of depreciation. This leaves \$637,500 as real, or 39-year, property.
For example, the cost of depreciable land improvements may be depreciated over a 15-year period using the 150-percent declining balance method of depreciation. Most of the personal property related to investment real estate is depreciated over a period of seven years using the 200-percent declining balance method of depreciation.
3, the taxpayer purchased a used aircraft and used an improper double declining balance method of depreciation for three years.
This implies a declining balance method of depreciation that reflects the time discounting of retirements.
Before 1986, under the Accelerated Cost Recovery System, the cost of an investment in real property could be written off over 19 years, using the 175% declining balance method of depreciation. This method allows a larger proportion of the investment cost to be written off in the earlier years of the depreciation period.

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