A construction company purchases a crane for $180,000. Using the Modified Accelerated Cost Recovery System (MACRS) with a 5-year recovery period, what is the depreciation percentage for the second year?
Correct Answer
B) 32.00%
Under MACRS 5-year property, the second-year depreciation percentage is 32.00%. The MACRS percentages for 5-year property are: Year 1: 20%, Year 2: 32%, Year 3: 19.2%, Year 4: 11.52%, Year 5: 11.52%, Year 6: 5.76%.
Why This Is the Correct Answer
Under MACRS 5-year property classification, construction equipment like cranes follows predetermined depreciation percentages set by the IRS. The second year depreciation rate is specifically 32.00% according to the MACRS table for 5-year property. This is a fixed percentage that applies regardless of the equipment's purchase price, and contractors must use these exact percentages for tax depreciation calculations.
Why the Other Options Are Wrong
Option A: 38.40%
25.60% is not a valid MACRS percentage for any year in the 5-year property schedule
Option C: 25.60%
20.00% is the first-year depreciation percentage for MACRS 5-year property, not the second year
Option D: 20.00%
38.40% is not a valid MACRS percentage for 5-year property and exceeds the actual second-year rate
Memory Technique
Remember '20-32-19' for the first three years of 5-year MACRS: Year 1 (20%), Year 2 (32%), Year 3 (19.2%) - think '20 goes to 32, then drops to 19'
Reference Hint
IRS Publication 946 'How to Depreciate Property' or the MACRS depreciation tables typically found in tax reference sections of construction business guides
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