Are you trying to sell your old furniture but you’re unsure how much to sell it for?
Calculating the depreciation rate of your furniture is going to help give you an answer.
Like with most things, the value of furniture also depreciates over time.
However, there is no fixed depreciation rate, especially for home furniture.
So in this article, we’re going to help you find the most accurate depreciation rate for your furniture.
So keep reading to learn more!
Calculating Furniture Depreciation Rate
There are several types of depreciation. The most common ones are straight-line depreciation, double declining depreciation, sum of year digits depreciation, and unit of production depreciation.
The simplest one is straight-line depreciation. This is what is most relevant to home furniture, so this is what we will use.
To calculate the depreciation rate using straight-line depreciation, you will need to determine a few things.
The cost of the furniture, the salvage value, and the useful life of the furniture.
We will talk more about determining each of those later on in this article. But for now, let’s calculate the depreciation value of your furniture per year.
The formula goes like this:
Depreciation Value per year = (Cost of furniture – Salvage value)/ Useful life
First, subtract the salvage value of your furniture from the cost of the furniture when it was new. Then divide it by the useful life of the furniture.
You’ll be left with the depreciation value of your furniture per year.
Here’s a quick example:
You bought an office chair for $500 and the salvage value at the end of its useful life is $50. So you subtract $50 from $500 and you’re left with $450.
Let’s assume that the useful life of your office chair is 7 years. You divide $450 by 7. You’ll be left with $64.28.
This means the value of your office chair drops by $64.28 every year. That’s a 12.8% drop every year.
Now, suppose you wanted to sell your office chair after using it for only 3 years.
Subtract $64.28 x 3 years to get the estimated value of your office chair after 3 years. That’s $500 minus $192.84. You’ll get $307.16.
So based on our straight-line depreciation rate, you can sell your office chair at around $300 more or less after using it for 3 years.
1. Cost of Furniture
The cost of furniture is the easiest to determine. The amount of money you paid to acquire that piece of furniture is the cost of the furniture.
It doesn’t matter if you got the piece of furniture brand new or secondhand. Whatever amount you paid to get the furniture is automatically the cost of the furniture.
2. Useful Life of Home Furniture
The furniture useful life is the number of years it is expected to function properly with normal usage.
That means these pieces of furniture are being used daily by different employees. This causes a lot more wear and tear to the furniture.
In the context of home furniture, the useful life of furniture is naturally longer.
There is no useful life standard for home furniture but we can take from the IRS’s business standard and make an estimate from there.
An important thing you should consider when you’re estimating useful life is how frequently the piece of furniture is used. If you use it everyday, you can get a number that is closer to the IRS’s standard.
If the piece of furniture is used only once a week or less, you may extend the useful life estimate of the furniture.
Take note that the useful life of furniture does not consider unusual damages done to the furniture.
Useful life only includes normal use of the furniture and the natural wear and tear from using it the way it should be used.
Calculating the damage on the furniture is a different topic.
3. Furniture Salvage Value
The salvage value of a piece of furniture, also known as the scrap value, residual value, or break-up value, is the value of the furniture at the end of its useful life.
Depending on the type of furniture you have, this value can be brought all the way down to $0.
Again, there is no standard for salvage value when it comes to the home furniture.
You can estimate the salvage value by checking how much people are selling their used furniture online.
You can come up with a good estimate by doing some homework. Check how much people are selling similar pieces of furniture, and how long they’ve been using it for.
Unlike cars and other machinery, there is no standard depreciation rate when it comes to home furniture.
The IRS has some standards for office furniture that are used in businesses, but home items usually don’t have any depreciation standards.
This is why it can be a bit tricky when you’re trying to figure out the depreciation rate for your home furniture.
We hope that the information in this article has given you a good understanding of how depreciation works.
And hopefully, you’ll be on your way to figuring out your own depreciation rate for your home furniture!