How to Compute a Car's Depreciation
Cars, just like many other long-term assets, depreciate in value over time. It is important, especially if you are a small-business owner, to calculate the depreciation of your car's worth over time as there are some tax benefits to doing this. Depreciation is a fairly simple formula, and anyone can use it to determine the current value of his or her car.
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Instructions
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1
Determine the salvage value of the car. Salvage value is determined as the "Blue Book" value of the car at the point when depreciation is being calculated. Look up the value of your make and model of vehicle in the Kelley Blue Book.
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2
Determine the "useful life" of your vehicle. Calculate the estimated useful life of the car by subtracting the number of years since its production from eight, the normal total lifespan of a vehicle.
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3
Fill the values from Steps 1 and 2 into this formula: cost of car minus salvage value of car divided by estimated useful life. The result equals the annual depreciation value. For example: ($20,000 - $5,000) / 3 = $5,000 per year.
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4
Multiply the value from Step 3 by the number of years since you purchased the vehicle, and subtract that value from the purchase value of the car to get the depreciated value. Example: $20,000 - (3 years x $5,000) = $5,000.
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Tips & Warnings
In general, the Blue Book value is going to be fairly close to the depreciated value of the car. But you can determine the annual depreciation by using the formula outlined in this article.
