Whar is MACRS Depreciation and how it is calculated

Expert Solution

MACRS stands for modified accelerated cost recovery system. It is the current system allowed in the United States to calculate tax deductions on account of depreciation for depreciable assets (other than intangible assets). IRS Form 4562 is used to claim depreciation deduction.

It allows a larger deduction in early years and lower deductions in later years when compared to the straight-line method.

There are two sub-system of MACRS: the general depreciation system (GDS) and alternate depreciation system (ADS). GDS is the most relevant and is used for most assets.

Formulas

Depreciation in 1st Year =
Cost ×	1	× A × Depreciation Convention
Useful Life

Depreciation in Subsequent Years =
(Cost − Depreciation in Previous Years) ×	1	× A
Recovery

Where,
A is 100% or 150% or 200%.

However, where the depreciation calculated using the above formula is lower than depreciation under straight line method, the straight line depreciation for the previous year is taken as the relevant depreciation deduction for the rest of the recovery period.

Hope this meets your purpose.

Kindly Like the answer if it was helpful. This motivates the experts.

And feel free to comment in case of any concern. Also any feedback will be appreciated

Thanks.

ekkarill92 answered 1 year ago

If revising depreciation, how is it calculated?

Which of the following is true about MACRS depreciation? a. Depreciation begins in the middle of...

Which of the following is true about MACRS depreciation? a. Depreciation begins in the middle of the month in which real property is placed in service. b. Mid-quarter MACRS is required for all assets if real property is placed in service in the last quarter of the year. c. Commercial buildings are depreciated over 39 years using an accelerated method. d. Residential rental buildings are depreciated straight-line over 20 years.

How is the MACRS depreciation method under IRS rules different from the straight-line depreciation allowed under...

How is the MACRS depreciation method under IRS rules different from the straight-line depreciation allowed under GAAP rules? What is the implication on incremental after-tax free cash flows from firms’ investments?

Get the depreciation using the MACRS table provided in the question.

Expansion project NPV Get the depreciation using the MACRS table provided in the question.01234Cost (650,000)Inventory (55,000)Accounts Payable 20,000Sales 300,000 300,000 300,000 300,000Operating Cost (150,000)(150,000)(150,000)(150,000)Deprecition (214,500)(292,500) (97,500) (45,500)EBT (64,500)(142,500) 52,500 104,500Tax30% (19,350) (42,750) 15,750 31,350NI (45,150) (99,750) 36,750 73,150+ Deprection 214,500 292,500 97,500 45,500After-tax salvage Value 21,000Return NWC 35,000After-tax CF (685,000) 169,350 192,750 134,250 174,650Note in Year 4 $35,000 of working capital is recovered plus the after tax salvage value of $21,000.Enter the cash flows into the cash flow register and solve for the NPV using the WACC of 11%.NPV = $(162,782); IRR = -0.83%MIRR= __________3.72%_________Payback = _____________4.00__________________

what is accrual depreciation? how is it calculated. someone give an example please

Depreciation of Commercial Property is calculated by dividing the value of the ______by (how many years)?

Depreciation of Commercial Property is calculated by dividing the value of the ____________________by ______________(how many years)?

Tax Depreciation Lab Assignment: Prepare an excel Spreadsheet to calculate MACRS depreciation on the following assets....

Tax Depreciation Lab Assignment: Prepare an excel Spreadsheet to calculate MACRS depreciation on the following assets. Use the MACRS tables to look up the proper % to use for depreciation each year. Business Assets: Date Item Purchased Amount Bus. Use Life Truck 2/05/17 $28,000 100% 5 yr. Mower 2 3/08/17 12,000 100% 7 yr Seeder 3/01/16 3,400 100% 7 yr Equipment 6/25/16 1,595 100% 7 yr Laptop 5/18/16 ...

Two alternatives with the cash flow described below. MACRS depreciation and 5years MACRS Incremental tax rate=24%...

Two alternatives with the cash flow described below. MACRS depreciation and 5years MACRS Incremental tax rate=24% After tax MARR= 10% A B Initial cost 11,000 33,000 Uniform Annual Benefits 3,000 9,000 Salvage Value 2,000 5,000 Life(years) 5 5 Find the alternative to choiisw, after cinsidering taxes

how to calculate MACRS Depreciation. Please describe Clearly with example calculation, i can't understand by old...

how to calculate MACRS Depreciation. Please describe Clearly with example calculation, i can't understand by old answers.

What are the differences in depreciation, cost recovery, amortization, and depletion. Discuss MACRS

Question