2010
How do you calculate Modified Accelerated Cost Recovery System (MACRS) Depreciation?
Modified Accelerated Cost Recovery System (MACRS) Depreciation Calculations:
Depreciation Basis: We assume the "depreciation basis" is the Net Cost (after incentives) and we add back 50% of the federal tax credit (for simplicity, we add back 15% of gross cost). The cash you save (shown in Cash Flow chart) is this amount times your effective tax rate. So, if you depreciate $10,000 and have an income tax rate of 35%, you save $3,500 on your taxes.
The depreciation schedule used is: 10%, 32%, 19.2%, 11.52%, 11.52%, 5.76% in years 1 thru 6 respectively.
Again, the cash you save (on taxes) is the depreciated amount times your effective tax rate.
NOTES: We have also assumed the MACRS depreciation method described here applies to both federal and state tax returns. Some states may treat depreciation differently.
See: IRS form 4562 and Instructions for form 4562
Also see: IRS Pub. 946 - How to Depreciate Property
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