The Ministry of Finance published the FY2009 Tax Reform ( Main Points) on December 19, 2008. Included in the Reform is the introduction of a 2- year measure allowing immediate depreciation for investment in energy- saving facilities and appliances. If this measure doubles the MACRS allowable depreciation for the first year, what depreciation expense would a new energy- efficient HVAC system costing $ 138,500 be for the first year ( assume a 15- year life class)?
To calculate the depreciation expense for the first year using the 2-year measure allowing immediate depreciation for investment in energy-saving facilities and appliances, you need to determine the MACRS allowable depreciation for the first year before the measure was introduced.
Here's how you can calculate the depreciation expense for the first year:
Step 1: Determine the MACRS allowable depreciation rate for the HVAC system based on its 15-year life class. You can refer to the IRS Publication 946, Appendix A, Table A-1 for the applicable rates. Let's assume the rate is 14.2857% (rounded for simplicity).
Step 2: Calculate the MACRS allowable depreciation for the first year without the 2-year measure. Multiply the initial cost of the HVAC system ($138,500) by the MACRS rate (14.2857%):
Depreciation expense without the measure = $138,500 * 0.142857 = $19,821.43
Step 3: Determine the depreciation expense for the first year with the 2-year measure that doubles the MACRS allowable depreciation. Multiply the depreciation expense without the measure by 2:
Depreciation expense with the measure = $19,821.43 * 2 = $39,642.86
Therefore, the depreciation expense for the first year of the new energy-efficient HVAC system, considering the 2-year measure, would be $39,642.86.