Question

Agricultural machinery is purchased by Henredon for $250,000. It is expected to last 12 years. Calculate the depreciation deduction and book value for each year using MACRS-GDS allowances.

What is the MACRS-GDS property class? Provide your answer in year (format example: 3 year)

Answer 1

The agricultural machinery is likely classified under the 7-year MACRS-GDS property class for depreciation purposes, and the depreciation deduction and book value for each year is calculated using MACRS-GDS percentages from IRS tables.

Step-by-step explanation:

The Modified Accelerated Cost Recovery System (MACRS) is the tax depreciation system in the United States. MACRS allows for the accelerated depreciation of assets depending on the class life of the asset. The agricultural machinery purchased by Henredon for $250,000 with an expected lifespan of 12 years would likely fall under the 7-year MACRS-GDS property class for farming equipment.

Each year, Henredon would apply the appropriate MACRS-GDS percentage to the original cost of the machinery to calculate the depreciation deduction for that year. The book value at the end of each year is then calculated by subtracting the accumulated depreciation from the original cost.

It is important to consult the latest Internal Revenue Service (IRS) MACRS depreciation tables to find the exact percentage applicable for each year under the 7-year property class.