If you are in the market to buy or sell construction equipment, you want to have a good understanding of how depreciation is calculated for construction equipment. Whether you are seeking a used articulating boom lift for sale or you want to list your own used Lull for sale, knowing the value of the asset is vitally important. Let’s take a closer look at three ways that construction equipment depreciation is calculated:
3 Ways Construction Equipment Depreciation is Calculated
Useful Life Depreciation
In accounting terms, the “expected useful life” is essentially how long a piece of equipment is expected to last until it must be replaced. The useful life of an asset is measured in years. The IRS uses useful life estimates to determine how long an asset can be depreciated. There are numerous variables that can affect the IRS’s useful life estimates, such as equipment usage patterns, how old the asset was when it was purchased, and technological advances.
The “straight-line” depreciation of construction equipment is calculated by dividing the cost of the equipment by the number of years in its estimated life. Under the straight-line depreciation model, the value of a piece of construction equipment depreciates in equal amounts over the course of its estimated useful life.
Declining Balance Depreciation
The “declining balance” depreciation model is an accelerated depreciation calculation. Rather than distributing the cost of the asset evenly over the course of its estimated useful life, an increased rate of depreciation is recorded early on, and the rate of depreciation gradually decreases over time. This method is typically used for equipment that receives relatively more use during the early years of its life.
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