Salvage Value

Loading the player...

What is a 'Salvage Value'

Salvage value is the estimated value that an asset will realize upon its sale at the end of its useful life. The value is used in accounting to determine depreciation amounts and in the tax system to determine deductions. The value can be a best guess of the end value or can be determined by a regulatory body such as the IRS.

BREAKING DOWN 'Salvage Value'

The salvage value is used in conjunction with the purchase price and accounting method to determine the amount by which an asset depreciates each period. For example, with a straight-line basis, an asset that cost $5,000 and has a salvage value of $1,000 and a useful life of five years would be depreciated at $800 ($5,000-$1,000/5 years) each year.

Within the tax system, when a person donates a car he or she receives a tax deduction. The value of this deduction depends on the salvage value of the car. This salvage value is determined to be the current fair market value that could be obtained had the car been sold on that day rather than donated.

RELATED TERMS
  1. Retirement Method of Depreciation ...

    An accounting procedure in which an asset is expensed for depreciation ...
  2. Section 1245

    A part of the IRS code stating that depreciable property that ...
  3. Fully Depreciated Asset

    A property, plant, or piece of equipment which, for accounting ...
  4. Straight Line Basis

    A method of computing amortization (depreciation) by dividing ...
  5. Abandonment And Salvage

    An expression that describes the forfeiture of property and the ...
  6. Unadjusted Basis

    A basis used for depreciation purposes. Unadjusted basis uses ...
Related Articles
  1. Forex Education

    Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  2. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  3. Economics

    Double Declining Balance Depreciation Method

    The double declining balance depreciation method counts the depreciation of a long-lived asset’s book value at double the rate of its straight-line depreciation.
  4. Economics

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.
  5. Options & Futures

    Understanding Net Present Value

    Learn how this value is used to determine the worth of a project.
  6. Investing

    How Does Depreciation Reduce My Tax Bill?

    How the depreciation tax rule can assist real estate investors.
  7. Taxes

    How To Deduct All Of Your Charitable Donations?

    Donations made to charitable organizations can reduce your taxable income, thus your overall tax bill. But not all donations qualify to be deductable.
  8. Fundamental Analysis

    Market Value Versus Book Value

    Understanding the difference between book value and market value is a simple yet fundamentally critical component to analyze a company for investment.
  9. Investing Basics

    Investment Value Vs. Fair Market Value: How They Differ

    Learn about the differences between an asset's investment value and its fair market value, including why many think fair market value is unrealistic.
  10. Markets

    Book Value: How Reliable Is It For Investors?

    In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain.
RELATED FAQS
  1. What is the difference between book value and salvage value

    Discover the difference between two valuations, the book value and the salvage value, and the respective purpose of each ... Read Answer >>
  2. How is salvage value used in depreciation calculations?

    Learn how an asset's salvage value is subtracted from its initial cost to determine the amount by which an asset is depreciated ... Read Answer >>
  3. What are the different ways to calculate depreciation for tangible assets?

    Learn what depreciation is and how to calculate it using the straight line method, declining balance method, and the sum-of-the ... Read Answer >>
  4. What are the different ways to calculate depreciation?

    Read about some of the different allowable methods of calculating depreciation expenses as allowed by generally accepted ... Read Answer >>
  5. Is depreciation only used for tangible assets?

    Learn if tangible assets can be depreciated, as well as what other assets are eligible for depreciation so you can account ... Read Answer >>
  6. How do I calculate fixed asset depreciation using Excel?

    Learn what depreciation is and how to use Excel to calculate depreciation for fixed assets with the straight line and sum ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center