# Depreciation — what it means for tradie asset finance > Depreciation lets NZ tradies claim a work asset losing value against income each year — separate from the loan, on top of your interest deduction, squared up at sale. Source: https://tradiefinance.co.nz/glossary/depreciation Published: 2026-05-15T08:00:00.000Z Category: tax-and-structure Tags: glossary, tax-and-structure Image: https://tradiefinance.co.nz/images/resources/generated/tradie/glossary/depreciation-primary.jpg Image alt: GST and finance paperwork representing Depreciation — what it means for tradie asset finance --- Buy a ute or a compressor for the business and it starts losing value the day you drive it off the lot. Depreciation is how the tax system lets you claim that drop in value back against your income — and it's one of the quiet reasons owning good gear can work out cheaper than the sticker suggests. ## What depreciation is **Depreciation** is a tax deduction that recognises a business asset wearing out or losing value over time. Instead of claiming the whole cost in one hit, you write off a slice of it each year against your business income, which lowers your taxable profit. It applies to the gear that earns you money: work vehicles, trailers, tools above the low-value threshold, plant and machinery, even office kit. IRD sets a depreciation rate for each type of asset, so a ute and a laptop will run off at different speeds. There are two main methods: - **Diminishing value (DV)** — a fixed percentage of the asset's *remaining* value each year. Bigger deductions early, smaller ones later. - **Straight line (SL)** — the same dollar amount every year across the asset's life. Flatter and more predictable. Most accountants reach for DV because the front-loaded deductions line up with how fast a hard-worked ute drops in value — but it depends on your situation, so confirm the rate and method with your accountant or IRD. ## How it works — and when it matters for tradies The first thing to get straight: **depreciation is completely separate from your finance.** You depreciate the *asset*, not the loan. Whether you paid cash, used a [chattel mortgage](/glossary/chattel-mortgage), or used hire purchase, you claim depreciation the same way — and you *also* claim the interest portion of your repayments as a business expense. Two different deductions stacked on the one purchase. What you depreciate is the cost of the asset. **If you're GST-registered, you use the GST-exclusive price** as the base, because you've already claimed the [GST back separately](/glossary/gst-on-asset-finance). If you're not registered, you use the GST-inclusive price. A rough worked example for a $46,000 ute (GST-inclusive), assuming you're registered: | Step | Figure (illustrative) | | --- | --- | | GST-inclusive purchase price | $46,000 | | GST claimed back (3/23 rule) | ~$6,000 | | GST-exclusive base for depreciation | ~$40,000 | | Year 1 depreciation at an illustrative 30% DV | ~$12,000 deduction | | Closing value carried into year 2 | ~$28,000 | Those numbers are illustrative only — your actual rate, GST position and tax saving depend on your business, so run it past your accountant or check current rates with IRD. ### Depreciation recovery when you sell Here's the bit tradies get caught by. If you sell the asset later for **more than its depreciated (book) value**, IRD claws some of those deductions back. That's called **depreciation recovery** (or recovered depreciation), and it's taxable income in the year you sell. Say you've depreciated the ute down to $20,000 on paper but sell it for $26,000. The extra $6,000 above book value is recovered depreciation — you over-claimed, so it's added back to your income. It's not a penalty; it just squares up the books. Worth knowing before you trade up, especially if the resale lines up with a [balloon or residual](/glossary/residual-value) on your finance. Depreciation, GST and the interest deduction all hinge on the asset being genuinely owned and used by the business. Sort your ownership and finance structure first — your accountant says whether the asset belongs in the company, and we place the finance to match. None of this should be the whole reason you buy — but it does mean the real cost of owning good gear is lower than the sticker. ## See also - [Chattel mortgage](/glossary/chattel-mortgage) - [Residual value](/glossary/residual-value) - [GST on asset finance](/glossary/gst-on-asset-finance) - [What tradies get wrong about GST and finance](/blog/what-tradies-get-wrong-about-gst-and-finance) Not sure how depreciation, GST and finance stack up for your next purchase? [Book a call](/book-a-call) and we'll talk it through with you — no pressure, just plain answers. Always confirm the tax detail with your accountant or IRD.