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Salvage value is the amount a company expects to receive from the sale of an asset at the end of that asset’s useful life. Salvage value plays a part in the depreciation calculation of an asset, since the salvage value is subtracted from the depreciable cost base.

For instance, XYZ Corp purchases a computer for $1,500.  The computer has a useful life of 3 years.  XYZ estimates that it will be able to sell the computer for $300 at the end of the three years.  The cost basis for depreciating this computer is the purchase price ($1,500) minus the salvage value of $300 / 3 years, which equals $400. Thus on a straight-line depreciation basis, yearly depreciation for the computer will be $400.

Salvage value is often difficult to estimate, or is of minimal consequence.  In those situations, it is ignored and the entire cost of the asset is used in the depreciation calculation.

The US tax system uses salvage value to determine the deduction allowed for certain non-monetary charitable contributions, such as a used automobile.  The donation amount is not the original price paid for the donated item, but rather the typically far lesser amount of the market value of the item on the date of the donation. 

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