Question

Bauk Printing uses the calendar year. Bauk purchases a digital printer for $140,000 and places it in service on April 1, 2016. The Company estimates that the digital printer will have a useful life of 10 years and no salvage value. If it uses MACRS and the half-year convention to compute its depreciation deduction, how will the purchase affect its net income and its taxable income in 2016? In 2020?

Answer 1

Depreciation rate in the first year 2016 = 10%, so Depreciation = 140000 * 10% = $14000. The net income is reduced by $14000.

Depreciation rate in the fifth year 2020 = 9.22%, so Depreciation = 140000 * 9.22% = $12908. The net income is reduced by $12908.

Note : MACRS and the half year convention depreciation rates:

Year	Depreciation Rate in % for Recovery Period
	3-year	5-year	7-year	10-year	15-year	20-year
1	33.33	20.00	14.29	10.00	5.00	3.750
2	44.45	32.00	24.49	18.00	9.50	7.219
3	14.81	19.20	17.49	14.40	8.55	6.677
4	7.41	11.52	12.49	11.52	7.70	6.177
5		11.52	8.93	9.22	6.93	5.713
6		5.76	8.92	7.37	6.23	5.285
7			8.93	6.55	5.90	4.888
8			4.46	6.55	5.90	4.522
9				6.56	5.91	4.462
10				6.55	5.90	4.461
11				3.28	5.91	4.462