What is the Year 1 MACR percentage for a 5-year class asset?

What is the Year 1 MACR percentage for a 5-year class asset?

• A. 10%
• B. 20%
• C. 25%
• D. 15%

Answer: (B)

Under MACRS, a five-year class asset is depreciated using the 200% declining-balance method with a half-year convention. The half-year convention means you assume the asset was placed in service mid-year, so only half of the first year's depreciation is allowed. The 200% declining-balance rate would be about 40% per year, but the half-year convention reduces the Year 1 deduction to 20% of cost. That’s why the Year 1 MACR percentage for a 5-year class asset is 20%. After Year 1, depreciation follows the MACRS schedule (roughly 32% in Year 2, 19.2% in Year 3, 11.52% in Year 4 and Year 5, and 5.76% in Year 6) to total 100%.

Under MACRS, a five-year class asset is depreciated using the 200% declining-balance method with a half-year convention. The half-year convention means you assume the asset was placed in service mid-year, so only half of the first year's depreciation is allowed. The 200% declining-balance rate would be about 40% per year, but the half-year convention reduces the Year 1 deduction to 20% of cost. That’s why the Year 1 MACR percentage for a 5-year class asset is 20%. After Year 1, depreciation follows the MACRS schedule (roughly 32% in Year 2, 19.2% in Year 3, 11.52% in Year 4 and Year 5, and 5.76% in Year 6) to total 100%.