Declining Balance Depreciation

A method of Depreciation often used for income tax purposes, whereby a rate is applied to the remaining balance to derive the depreciation deduction. Compare with Accelerated Depreciation. See Modified Accelerated Cost Recovery System.
Example: Table 15 shows the depreciation schedule for a property with a Tax Basis of $10,000 and Depreciable life of 5 years, using the 125% declining balance method:

Table 15 Declining Balance Depreciation

Year Remaining balance Rate* Annual deduction

1 $10,000 0.25 $2,500

2 7,500 0.25 1,875

3 5,625 0.25 1,406

4 4,219 0.25 1,055

5 3,164 0.25 791

* A 5-year life results in 20% per year depreciation using the straight-line method. The 125% declining balance method results in an annual percentage of 25 for an asset with this life (125% of 20% = 25%).