What Is Depreciation?
📷 Depreciation captures how assets lose value over time — and it affects taxes, business decisions, and your own finances
Depreciation affects profit figures, tax bills, and investment decisions. A business that buys a $100,000 vehicle doesn't lose $100,000 in profit that year — it depreciates the vehicle over time, reducing taxable income gradually. Understanding this helps you read financial statements accurately and make smarter purchasing decisions.
Cars lose ~15–25% per year
A $30,000 car may be worth $15,000 in 4 years
Rapid depreciation
Phones, laptops lose significant value quickly
Spread over useful life
Machinery depreciated over 5–20 years in accounts
Slow depreciation
Structures depreciate over 25–40 years typically
| Year | Car Value | Depreciation That Year |
|---|---|---|
| Purchase (new) | $30,000 | — |
| Year 1 | $24,000 | -$6,000 (20%) |
| Year 3 | $18,000 | -$3,000/yr |
| Year 5 | $13,500 | -$2,250/yr |
| Year 10 | $6,000 | Lost $24,000 total |
⚡ Quick Summary
Depreciation = how an asset's value decreases over its useful life
Businesses use it to spread asset costs over time on financial statements
Reduces taxable income — a legitimate and important tax tool
Cars depreciate fast — one reason buying vs leasing decisions matter