Taxes: Depreciation on Barge

Suppose you purchase a \$10,000 barge — a 10-year asset. Under the MACRS what is the depreciation on the barge in the 2nd year you own it?

In order to develop a solution, we need to address the givens first.

Given:
\$10,000 barge (10 year asset)

Find:
Depreciation under MACRS in the 2nd year

Solution:
The first thing we need to address here is that the problem is asking for the depreciation of the barge just in a single year (2nd year), not after 2 years of owning it. Be careful with that distinction since in a single year, you just account for one percentage (18.00% by Table 9.3); on the other hand, after 2 years of ownership, you need to account for multiple percentages (10.00% and 18.00% by Table 9.3).

Once we have clarified such distinction, we can proceed to Table 9.3 in the textbook and look for the depreciation percentage in year 2 under class 10 assets (18.00%):

Total Depreciation = \$10,000 (0.18) = \$1,800

page revision: 4, last edited: 08 Dec 2015 17:20