What Does Straight Line Depreciation Mean?

January 31, 20247 min read
What Does Straight Line Depreciation Mean?
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways

  • Straight line depreciation is the simplest and most commonly used depreciation method for allocating a capital asset’s cost. 
  • Compared with the depreciation method of double-declining balance — an accelerated depreciation approach — straight line depreciation is more user friendly.
  • Straight line depreciation typically covers fixed assets such as real estate, equipment, and machinery, as they are expected to last more than one year.

As an accounting process, depreciation spreads a fixed asset’s cost over its useful life, or the period in which it will likely be used. 

The company can, during this period, write off the asset’s value. The assets are commonly equipment, machinery, or property. Writing off just a portion of the cost each year allows investors to report more net income than they otherwise would have.

Depreciation is used by companies to transfer asset costs from balance sheets to income statements. A number of methods can be used, including straight line depreciation. 

Here is what investors and prospective investors should know about straight line depreciation, which can help with investment decisions.

What is Straight Line Depreciation?

Straight line depreciation is the simplest and most commonly used depreciation method for allocating a capital asset’s cost, and results in the fewest calculation errors. It determines the loss of an asset’s value over time.

With this method, an asset’s value is uniformly lowered over each period until it reaches its salvage value — the amount an asset is approximated to be worth at the conclusion of its useful life.

An asset’s cost with this basis is depreciated the same amount for each accounting period. This helps to avoid extreme cash-balance and profitability swings on a company’s financial statements. Expensing all at once would have that effect. Key assets can then be depreciated on a business balance sheet or tax income statement.

The name derives from the fact that, if charted, results of the basis appear as a straight line. 

How Does the Process of Straight Line Depreciation Work?

Straight line depreciation involves raising the depreciation expense account on income statements as well as accumulated depreciation on the balance sheet. The method is designed to reflect the underlying asset’s company consumption pattern.

Accumulated depreciation is what is called a contra asset account, meaning that the account balance is really a credit balance. Thus, the basis indirectly lowers a fixed asset’s book value when the two accounts are netted against each other, 

The basis is key because aligning expenses with revenue helps a company more accurately determine its profitability. Specifically, the method results in even, consistent depreciation charges. Thus, it renders financial forecasting and budgeting easier and helps with operating profitability and cash flow analysis.

How Do You Calculate Straight Line Depreciation?

The calculation simply calls for dividing an asset’s cost, minus its salvage value, by the asset’s useful life. 

Annual Depreciation Expense = (Cost of the Asset – Salvage Value)


                                                    Useful Life of the Asset


  • Cost of the Asset is the asset’s purchase price
  • Salvage Value is the asset’s value at the end of its useful life
  • Useful Life of Asset represents the number of periods or years the asset is expected to be used by the company 

Note than an additional calculation method is:

Straight Line Depreciation Rate = Annual Depreciation Expense


                                                      (Cost of the Asset – Salvage Value)

Here are calculation steps:

  1. Determine the asset’s cost.
  2. To get the total depreciable amount, subtract the asset’s estimated salvage value from the asset’s cost.
  3. Determine the asset’s useful life.
  4. For the annual depreciation amount, divide the total of step number two by the number arrived at in step number three.

What Kinds of Assets Can Be Used for Straight Line Depreciation 

Straight line depreciation typically covers fixed assets such as real estate, equipment, and machinery, as they are expected to last more than one year. Because these assets are relatively high cost, depreciation aims to spread out their costs over the period they will be in use.

Note these examples of the useful lives of common assets:

  • Five years for office equipment such as fax machines and copiers.
  • Seven years for fixtures and office furniture.
  • Five years for cars and trucks.
  • Three years for manufacturing tools, livestock, and tractors.

What is an Example of Straight Line Depreciation?

When it comes to real estate, the basis is the property’s depreciation in equal amounts over its useful life. 

Say a property bought for $180,000 is depreciated employing a tax life of 27.5 years. That would call for dividing the $180,000 by 27.5 to get an annual straight line depreciation of $6,545, the amount that can be deducted.

Note that the assumption is that the property is rented out. The recovery period for residential rental property is set by the IRS at 27.5 years. 

What are the Benefits and Limitations of Straight Line Depreciation?

There are potential benefits and drawbacks with most anything in the financial space, including straight line depreciation.

As for advantages, the method is simple and relatively easy to use compared to other depreciation methods and mitigates the amount of necessary record keeping. Straight line depreciation also applies to a wide variety of fixed assets.

The method also yields fewer errors over the asset’s life. Thus, the same amount is expenses each accounting period.

In terms of limitations, it is straight line depreciation’s simplicity that also can be counted as a demerit. How so? The calculation of useful life is frequently guesswork based. For example, the risk is always present that technological innovation could make the asset obsolete earlier than anticipated.

Also, the accelerated loss of an asset’s short-term value is not factored in. Neither is the probability that the asset will cost more to maintain with age. Among different companies, useful life and salvage value estimates can be inconsistent.

How Does Straight Line Depreciation Compare to Other Depreciation Methods?

Compared with the depreciation method of double-declining balance — an accelerated depreciation approach — straight line depreciation is more user friendly. After all, to calculate the amount of depreciation each accounting period, the straight line basis only uses three variables.

Note that although an asset’s purchase price is known, assumptions must be made regarding salvage value and useful life. Further, straight line depreciation assumes a steady and unchanging decline rate of an asset’s value. 

Such assumptions may not always be applicable, in which case another method may be better. Such methods can include units of production, sum of the year’s digits, declining balance, and modified accelerated cost recovery system.

Whatever depreciation method is used for fixed assets, the same one should generally be used over time. Because of its easy calculation and the fact that it is less prone to error, straight line depreciation is a common default.

Informed Investment Decisions 

With depreciation, investors can employ what companies report on their financial statements to gauge their financial state. They can use what they find to help with investment decisions. 

They also have Yieldstreet, the leading alternative investment platform, which helps with decisions. How? By not posting any prospective opportunities until they have gone through a rigorous vetting process. While no investment is risk free, Yieldstreet’s screening protocol removes a great deal of investment guesswork.

As it is, more and more investors are turning to stock market alternatives — asset classes such as real estate and art — as refuge from constantly fluctuating public markets. After all, the private market has topped the stock market in every downturn going back nearly 20 years.

But with Yieldstreet, which offers the broadest selection of alternative asset classes available, offerings are first assessed in the context of appraisals, insurance policies, and market trends.

Opportunities that do make the platform also serve another essential purpose — diversification. Constructing a portfolio of varying asset types can reduce overall portfolio risk. It can also protect against inflation and other economic instability and can even improve returns.

Invest in Alternative Assets

Diversify your portfolio with private market investment offerings.

Alternative Investments and Portfolio Diversification

Alternatives can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially exceptional gains these investments presented were also limited to these groups.

To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments.

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

In Summary

Straight line depreciation makes it easier to calculate the expense of a company’s fixed asset. It reduces a tangible asset’s value, which reduces tax liabilities. 

The method can also help investors determine a company’s value in addition to future earnings potential. This can help them decide where to take positions.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Synapse Financial Technologies, Inc. and its affiliates (collectively, “Synapse”) as well as certain third-party financial services partners. Synapse is not a bank and is not affiliated with Yieldstreet. Bank accounts are established by Evolve Bank & Trust. Brokerage accounts and cash management programs are provided through Synapse Brokerage LLC (“Synapse Brokerage”), an SEC-registered broker-dealer and member of FINRA and SIPC. Additional information about Synapse Brokerage can be found on FINRA’s BrokerCheck. By participating in a Synapse cash management program, you acknowledge receipt of and accept Synapse’s Terms of Service, Privacy Policy, and the applicable disclosures and agreements available in Synapse’s Disclosure Library.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure