Final answer:
The annual depreciation allowances and end-of-the-year book values for a $1.475 million piece of industrial equipment classified as seven-year property under MACRS, apply the MACRS depreciation percentages for each year to the initial cost and subtract the annual depreciation from the initial cost to get the book value for each year.
Step-by-step explanation:
Calculating MACRS Depreciation
To calculate the annual depreciation allowances and end-of-the-year book values for seven-year property under MACRS for a piece of industrial equipment costing $1.475 million, we follow the MACRS depreciation schedule for seven-year property. The MACRS percentages are applied to the initial cost of the equipment to find the annual depreciation.
Here are the MACRS depreciation percentages for seven-year property:
- Year 1: 14.29%
- Year 2: 24.49%
- Year 3: 17.49%
- Year 4: 12.49%
- Year 5: 8.93%
- Year 6: 8.92%
- Year 7: 8.93%
- Year 8: 4.46%
For example, for the first year, the depreciation expense would be 14.29% of $1.475 million, which equates to $210,777.50. To calculate end-of-the-year book values, subtract the depreciation expense from the initial cost for each year.
End-of-year book value for Year 1 = Initial cost - Year 1 depreciation
= $1.475 million - $210,777.50
= $1.264 million approximately.
Please note that the specific percentages applied each year may change based on tax law amendments, so it is always important to refer to the latest IRS guidelines or a tax professional when performing actual calculations.