Declining-Balance Depreciation Method Law and Legal Definition

Declining-Balance Depreciation Method is an accelerated depreciation method in which an assets book value is multiplied by a constant depreciation rate. Unlike the straight line and the sum of the digits methods, both of which use the original basis to calculate the depreciation each year, the double declining balance uses a fixed percentage of the prior years basis to calculate depreciation. The percentage rate is 2/N where N is the life of the asset. With this method, the basis never becomes zero. Consequently, it is standard practice to switch to another depreciation method as the basis decreases. Usually the taxpayer will convert to the straight line method when the annual depreciation from the declining balance becomes less than the straight line. . This depreciation method is allowed by the U.S. tax code and gives a larger depreciation in the early years of an asset.