Linear depreciation is an accounting method for systematically distributing the cost of an asset over its useful life. This equation involves determining the amount of annual depreciation that a company can take against the value of an asset. With linear depreciation, the asset’s book value declines in equal amounts every year until it reaches its salvage value, when the asset is fully depreciated. By applying this equation each year, businesses can estimate the tax deductions they are eligible to take on their investments and better manage their cash flow.