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 MACRS method, you need to follow these steps:
1. Determine the applicable MACRS depreciation method and recovery period based on the asset's class. In this case, the asset is an energy-efficient HVAC system with a 15-year life class.
2. Use the MACRS depreciation table to find the depreciation percentages for each year in the asset's recovery period. For a 15-year life class, the depreciation percentages are as follows:
Year 1: 14.29%
Year 2: 24.49%
Year 3: 17.49%
Year 4: 12.49%
Year 5 and onwards: 8.93%
3. Since the measure mentioned in the question allows immediate depreciation for the investment in energy-saving facilities and appliances, the MACRS allowable depreciation for the first year is doubled. Therefore, you need to calculate 2 times the depreciation percentage for Year 1.
4. To find the first-year depreciation expense, you'll multiply the 2 times the doubled depreciation percentage by the cost of the asset. In this case, the cost of the HVAC system is $138,500.
Let's calculate the first-year depreciation expense using the given information:
Depreciation Percentage for Year 1: 14.29%
2 times the Depreciation Percentage for Year 1: 2 * 14.29% = 28.58%
First-Year Depreciation Expense: 28.58% * $138,500 = $39,622.30
Therefore, the depreciation expense for the first year for the energy-efficient HVAC system, taking into account the measure allowing immediate depreciation, would be $39,622.30.