The equipment your team uses everyday won’t last forever. Even though preventive maintenance can extend the life of your assets, there will inevitably come a time when they no longer function efficiently.

Knowing an asset’s useful life can help you determine when equipment needs to be replaced. Finding the useful life of an asset is also important for scheduling maintenance, reporting equipment on taxes, and making long-term business decisions. 

Here, we’ll explain how to determine the useful life of an asset and detail some ways you can extend the lifespan of your equipment. 

What is the Useful Life of an Asset?

The useful life of an asset is the length of time an asset can be used while producing financial value for your company. Eventually, the cost to maintain an asset will become greater than the value it produces, indicating that it is time to salvage or replace it.

Useful life is a measurement that applies to all tangible assets in your business. Tangible assets can be everything from company buildings to factory machinery to current inventory. As assets age, they can become more expensive and difficult to maintain in a way that keeps your operations profitable.

An asset’s useful life is not the same as its actual life, which is typically longer. The actual life of an asset is how long a piece of equipment can physically be used, even after it’s no longer profitable to maintain. 

For example, refrigerators are common assets for companies in food service, life sciences, and other sectors. If an older refrigerator needed to be frequently serviced due to issues maintaining temperature, it would still be operational and within its actual lifespan. But the cost to repair the equipment, as well as the risk of failure it poses on a daily basis, would mean the asset’s useful life had passed.

There are several risks of continuing to use an asset after its useful life has expired. These include:

  • Loss of revenue: Once a machine costs more to maintain than the value it produces, it begins to drain company funds and cut into profits.
  • Unplanned breakdowns: Machines past their useful life have typically worn down with time, and may break down more often as they require more frequent maintenance.
  • Increased liability: Aging assets that need frequent maintenance may also pose more risk to employees, especially if they are difficult to service.

Estimating an asset’s useful life can help you prepare for the future and avoid risks associated with aging tools and equipment.

How to Calculate an Asset’s Useful Life

You can estimate the useful life of an asset by accounting for a number of factors, including service history, manufacturer recommendations, and IRS guidelines. Determining each asset’s useful life will vary depending on what information you have available.

Here are the most important factors to consider when determining useful life:

IRS Categorization

The IRS keeps a record of class life for a wide variety of assets across industries. Class life is an average estimate of useful life for different types of equipment. It also refers to the number of years an asset can be depreciated, which is helpful to know when writing off equipment on your taxes. 

You can refer to IRS publication 946, Appendix B for the full chart of assets and their class life. 

Manufacturer Recommendations

For tools and machinery, an asset manufacturer usually determines a recommended number of uses or a generalized lifespan. Knowing the expected longevity of an asset provides a great benchmark for estimating the useful life of an asset. 

Condition of an Asset at Time of Purchase

New assets typically last longer than used ones. If you’ve purchased a brand new piece of equipment, its lifespan will likely be similar to the manufacturer’s lifespan estimate. But if you purchased an asset in used or pre-owned condition, be sure to factor in how many years the asset has been used and how its been stored to get an accurate estimate of useful life.

Lifespan of Comparable Assets

If you have several of the same asset, it can help to keep a record of how long each piece of equipment lasts in your facility. That way, you can know what to expect for similar assets operating in the same environment.

Equipment manufacturers may also be able to provide figures for the lifespans of identical assets in other customer’s facilities.

Climate and Storage Conditions

The location of your asset and exposure to the elements can take a toll on its useful life. Humidity and excess moisture can cause assets to wear down or become rusty faster than in dry areas. Excessive heat and cold can also be hard on some machines and tools.

Similarly, if an asset operates outside, there’s an increased likelihood that it will be battered by rain, ice, snow, heat, or hail. If your asset has been exposed to rough conditions, be sure to factor in how much wear and tear it has experienced over time. 

Maintenance History

Your asset’s service history is of utmost importance for determining its useful life. Tools and machines that are regularly maintained typically last longer than ones that aren’t. 

Preventive maintenance, a strategy where assets are constantly monitored and serviced before something breaks, can help keep machines in excellent shape at all times. When equipment is maintained on a regular schedule, it’ll be in better shape than a machine that is only fixed when it breaks down.

Can you Extend the Useful Life of an Asset?

While estimations like IRS class life provide a helpful benchmark when determining useful life, every individual asset’s lifespan will vary. Plus, there are steps you can take to ensure your assets last as long as possible. 

Preventive maintenance is one of the best ways to extend an asset’s useful life. Tools like eMaint Computerized Maintenance Management System (CMMS) make it easy to track, schedule, and complete preventive maintenance tasks. 

The software provides real-time updates on equipment conditions and can set maintenance schedules far in advance to ensure PM tasks are completed on time. Contact the CMMS experts at eMaint to schedule your free demo today.