The Counting House, Inc., purchased 5-year property class equipment for $60,000. It uses the MACRS method of depreciation. What is tax depreciation for the second year of the asset's life?
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A. B. C. D.B
The Modified Accelerated Cost Recovery System (MACRS) is a method of calculating depreciation for tax purposes, which allows for greater tax savings in the early years of an asset's life.
To calculate MACRS depreciation, the first step is to determine the property's class life, which is based on its expected useful life. In this case, the property is a 5-year class asset.
Next, we need to determine the appropriate MACRS depreciation rate for the asset's class. For 5-year class property, the MACRS rates are:
Year 1: 20.00% Year 2: 32.00% Year 3: 19.20% Year 4: 11.52% Year 5: 11.52% Year 6: 5.76%
To calculate the tax depreciation for the second year, we use the Year 2 MACRS rate of 32.00%.
The formula for calculating MACRS depreciation is: Depreciation expense = (Cost basis x MACRS rate) x (1 - Bonus depreciation rate) x (1 - Section 179 deduction rate)
In this case, we are not given any information about bonus depreciation or Section 179 deduction, so we can assume those rates are both 0%.
Plugging in the numbers: Depreciation expense = ($60,000 x 32.00%) x (1 - 0%) x (1 - 0%) Depreciation expense = $19,200
Therefore, the answer is B. $19,200.