Equipment purchased for $125,000 is being depreciated using the Modified Accelerated Cost Recovery System (MACRS) with a 5-year recovery period. What is the depreciation rate for the second year?
Correct Answer
B) 32.00%
Under MACRS 5-year recovery, the second year depreciation rate 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 the Modified Accelerated Cost Recovery System (MACRS), equipment with a 5-year recovery period follows predetermined depreciation percentages established by the IRS. The second year depreciation rate for 5-year MACRS property is specifically 32.00%. This is a fixed percentage that applies regardless of the equipment's purchase price, and contractors must use these standardized rates for tax depreciation purposes.
Why the Other Options Are Wrong
Option A: 20.00%
20.00% is the depreciation rate for the first year of 5-year MACRS property, not the second year.
Option C: 19.20%
19.20% is the depreciation rate for the third year of 5-year MACRS property, not the second year.
Option D: 25.00%
25.00% is not a standard MACRS depreciation rate for any year in the 5-year recovery schedule.
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 'Twenty, Thirty-two, Nineteen' as a sequence.
Reference Hint
Look up 'MACRS Depreciation Tables' or 'Modified Accelerated Cost Recovery System' in the tax or accounting section of your reference materials.
More Business & Finance Questions
A contractor's license expires on March 31st. If they submit a renewal application on April 15th, what additional requirement must be met under Florida regulations?
A general contractor purchases equipment worth $45,000 with a useful life of 9 years and no salvage value. Using straight-line depreciation, what is the annual depreciation expense?
In Florida, what is the minimum workers' compensation insurance coverage required for construction companies with employees?
What is the typical recommended coverage amount for general liability insurance for a small to medium-sized general contracting business?
A contractor estimates startup costs of $75,000 for equipment, $25,000 for initial inventory, $15,000 for insurance premiums, and $10,000 for working capital. They can finance 70% of the total. How much cash do they need?
People Also Study
Previous Question
Your company is bidding on a public works project in Florida. Three days before the bid deadline, you discover a significant error in your material takeoff that would increase your bid by 15%. What is the most appropriate action?
Next Question
A general contractor subcontracts electrical work valued at $25,000. The electrical subcontractor fails to pay their suppliers. Under Florida Statutes Chapter 713, what is the general contractor's potential lien exposure?