A depreciation guide for tools

Each year, the age and wear on tools lowers their value from their original purchase prices. Depreciation estimates the current value of a tool based on its age and replacement cost. Depreciating the cost of tools on taxes allows small businesses to maximise their deductible allowance each year.

Depreciation Formula

Calculating depreciation takes into account a tools-replacement value and its age to determine what its current cash value is. The formula for this is Actual Cash Value = Replacement Cash Value -- (Depreciation Rate * Replacement Cash Value * Age).

Deduction Formula

Each year, you are allowed to calculate the depreciation of your tools to deduct a portion of their cost from your taxes. To calculate the deduction amount, multiply the purchase price of the tools by the depreciation rate. If a tool is used for only select months throughout the year, this is reflected when determining its annual depreciation. Divide the number of months it was used by 12, and use this formula to calculate your new deduction: Purchase Price * Depreciation Rate * (Months Used/12).

Depreciation Rate and Useful Years

According to the Claims Pages website, for the purposes of depreciating property, manual and power tools both have a lifespan of 20 years and an annual depreciation rate of 5 per cent.

Cite this Article A tool to create a citation to reference this article Cite this Article

About the Author

Getting hands dirty is just part of the fun for Sarah Shelton, who draws on personal experience to write home and garden, automotive and travel articles. Her pieces have appeared on ConsumerSearch.com, USA TODAY, Dremel.com and other websites. Shelton received a bachelor's degree from Fort Lewis College in Durango, Colorado and currently lives in southern Oregon.

Try our awesome promobar!