During 2014, William purchases the following capital assets for use in his catering business: New passenger automobile (September 30)$64,000 Baking equipment (June 30)19,200 Assume that William decides to use the election to expense on the baking equipment but not on the automobile (which has a 5-year recovery period), and he also uses the MACRS accelerated method to calculate depreciation. Assume he has adequate taxable income. Click here to access the depreciation table and click here to access the annual automobile depreciation limitations. Calculate William’s maximum depreciation deduction for 2014, assuming he uses the automobile 100 percent in his business.
First of all let us understand MARCS method,Hoe depriciation calcuted
The full form of MACRS is modified accelerated cost recovery system. MARCS allowed in the U.Ss 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.
Table for MARCS method for 5 year will be as follow
| Year | Depriciation Rate |
| 1 | 20 |
| 2 | 32 |
| 3 | 19.20 |
| 4 | 11.52 |
| 5 | 11.52 |
| 6 | 5.76 |
Election to expense (section 179 deduction). Taxpayers may elect to expense an amount of the acquisition cost of certain property. This cost would otherwise have to be deducted over a period of time using the regular depreciation rules. To qualify, the property must be personal property (property other than real estate) placed in service during the year and used in a trade or business
Depriciation on Baking machine will be as follow
Baking equipment is purchase3d on June 30 for $19,200
William decides to use the election to expense on the baking equipment and he has adequate income so maximum depriciation will be $19,200 on Baking equipment
passenger automobile (September 30)$64,000
=64000 x 20%
=12,800
William’s maximum depreciation deduction for 2014, assuming he uses the automobile 100 percent in his business is as follow
