Depreciation means stuff wears out and loses value over time. For example, after five years, a $1 million crane might depreciate by $500,000. Tax depreciation takes this idea a step further. The government doesn’t want to give you a $1 million tax deduction. They’d be even more broke. Instead, they’ll take the life expectancy of a machine (say, 10 years) and divide it by the price you paid ($1 million). That number (in our case, $100,000) is how much you would deduct over the expected life of the machine.