Problem 8-48 (a) (LO. 2, 5, 9) Burt purchased $58,000 of new computers for his business in May of the current year. Burt understands that if he elects to use ADS to compute his regular income tax, there will be no difference between the cost recovery for computing the regular income tax and the AMT. Burt wants to know the regular income tax cost, after three years, of using ADS rather than MACRS. Assume that Burt does not elect 179 limited expensing and that his marginal tax rate is 15%. He does not claim any available additional first-year depreciation. If required, round your final answers to the nearest dollar. Click here to access the depreciation tables to be used for this problem. a. The cost recovery under MACRS at the end of three years is $ b. The cost recovery under ADS (for AMT purposes) at the end of three years is $ c. Assuming a marginal tax rate of 24%, the income tax cost after three years of using ADS instead of MACRS is $ Exhibit 8.4 MACRS Accelerated Depreciation for Personal Property Assuming Mid-Quarter Convention (Percentage Rates) For Property Placed in Service after December 31, 1986 (Partial Table* ) 3-Year First Quarter Second Quarter Recovery Year Third Quarter Fourth Quarter Exhibit 8.6 Alternative Minimum Tax: 150% Declining-Balance Assuming Half- Year Convention (Percentage Rates) For Property Placed in Service after December 31, 1986 (Partial Table") Recovery 3-Year 5-Year 7-Year 9.5-Year 10-Year 12-Year Year 150% 150% 150% 150% 150% 150% 25.00 15.00 10.71 7.89 7.50 6.25 37.50 25.50 19.13 14.54 13.88 11.72 25.00 1785 15.03 12.25 11.79 10.25 16.66 12.25 10:31 10.02 8.92 16.66 12.25 9.17 8.74 7.85 8.33 12.25 9.17 8.74 1225 9.17 8.74 7.33 - 6.13 9.17 8.74 7.33 9.17 8.74 733 10 9.16 8.74 7.33 437 7.32 12 7.33 13 3.66 1250 7.33 1 58.33 41.67 25.00 8.33 2 27.78 38.89 50.00 61.11 5-Year Recovery Year First Quarter Second Quarter Third Quarter Fourth Quarter 1 35.00 25.00 15.00 5.00 * The figures in this table are taken from the official table that appears in Rev.Proc. 87-57, 1987-2 C.B. 687. Because of its length, the complete table is not presented. 2 26.00 30.00 34.00 38.00 7-Year **Switchover to straight-line depreciation. Recovery Year First Quarter Second Quarter Third Quarter Fourth Quarter 3.57 1 25.00 17.85 10.71 Exhibit 8.7 ADS Straight-Line for Personal Property Assuming Half-Year Convention (Percentage Rates) 2 21.43 23.47 25.51 27.55 For Property Placed in Service after December 31, 1986 (Partial Table) * Recovery Year 5-Year Class 10-Year Class 12-Year Class Exhibit 8.5 MACRS Straight-Line Depreciation for Personal Property Assuming Half-Year Convention* 1 10.00 5.00 4.17 For Property Placed in Service after December 31, 1986 2 20.00 10.00 8.33 Last Recovery Year 3 20.00 10.00 Other Recovery Years 8.33 4 20.00 10.00 8.33 MACRS Class Years % Year % % First Recovery Year 5 20.00 10.00 8.33 6 10.00 10.00 8.33 3-year 16.67 2-3 33.33 4 16.67 7 10.00 8.34 5-year 10.00 2-5 20.00 6 10.00 8 10.00 8.33 7-year 7.14 2-7 14.29 8 7.14 9 10.00 8.34 10-year 5.00 2-10 10.00 11 5.00 10 10.00 8.33 15-year 3.33 2-15 6.67 16 3.33 11 5.00 8.34 20-year 2.50 2-20 5.00 21 2.50 12 8.33 Note: The last two rows of this table are used for qualified improvement property (15-year normal MACRS; 20-year ADS). 13 4.17 8-7c Cost Recovery Tables . 6 Summary of Tables Exhibit 8.3 Regular MACRS table for personaty Depredation methods: 200 or 150 percent dedining-balance switching to straight-line Recovery periods: 3, 5, 7, 10, 15, 20 years, Convention: half-year Exhibit 8.8 MACRS Straight-Line Depreciation for Real Property Assuming Mid-Month Convention* (Percentage Rates) For Property Placed in Service after December 31, 1986:27.S-Year Residential Real Property Recovery The Applicable Percentage Is (Use the Column for the Month in the First Year the Property is placed in Services Year 1 5 10 12 3.485 3.182 2.8792.576 2.273 1970 1667 1.364 1.061 0.758 0.455 0152 2-18 3.6363636 36 3.636 36363.636 3636 36363.6% 3.63636363636 1637163 1611 1617 16171617 1617 1617 1637 1611 16371632 1.970 2273 2.526 3.182 3.485 3.6363636 3636 3.63636363636 0.000 0.000 0.000 0.000 0.000 0.000 0.152 0455 0.758 1.061 1.364 1667 For Property Placed in Service after December 31, 1986, and before May 13, 1993: 31.5 Year Nonresidential Real Property Recovery The Applicable Percentage Is (Use the Column for the Month in the First Year the Property is placed in Services Years 1 4 5 7 9 10 11 12 1 1012 2.77 2.511 1.984 1720 1455 1.100 0.926 0.001 0397 0112 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.175 3.125 3.175 175 3.174 2174 3.174 3.174 3174 3.174 3.174 3.174 3.174 3.174 2.174 2174 1.720 904 2.2119 2.513 2778 2012 3.175 3.175 3.125 2.125 2.175 1175 0.000 0.000 0.000 0.000 0.000 0.132 0.397 0.661 0.926 1.190 1.454 Exhibit 8.4 Regular MACRS table for personally. Depreciation method: 200 percent declining balance switching to straight-line. Recovery periods: 3, 5, 7 years. Convention mid-quarter Exhibit 8.5 MACRS optional straight-ine table for personally Depreciation method: straight-line. Recovery periods: 3, 5, 7, 10, 15, 20 years Convention: half-year Exhibit 8.6 For Property Placed in Service after May 12, 1993:39-Year Nonresidential Real Property Recovery The Applicable Percentage is (Use the Column for the Month in the First Year the Property is placed in Services 6 7 10 1 2.461 2247 2.033 1819 1.605.391 1177 0.9630.749 0.5350321 0.107 2-39 2.564 2.564 2.564 2.564 2.554 2.564 2.564 2.564 2.564 2.564 2564 2564 40 0.1070321 0.55 0.749093 1.177 1.301 405 1819 2013 2247 2461 Alternative minimum tax dedining-balance table for personalty Depreciation method: 150 percent declining balance switching to straight-line. Recovery periods: 3, 5, 7, 9.5, 10, 12 years. Convention half year. Exhibit 8.2 *The official tables contain a separate row for each year. For case of presentation, certain years are grouped in . these tables. In some instances, this will produce a difference of.001 for the last digit when compared with the official tables. . Alternative depreciation system straight-line table for personally, Depreciation method: straight-line. Recovery periods: 5, 10, 12 years. Exhibit 8.9 ADS Straight-Line for Real Property Assuming Mid-Month Convention (Percentage Rates) Exhibit 8.3 MACRS Accelerated Depreciation for Personal Property Assuming Half-Year Convention (Percentage Rates) Tor Property Maced in Service after December 31, 1986 Recovery 3 Year Year 7 Veer 10 Year 15 Year 20 Year Year 2004. 2004 2003 DR 1900DE 1950, DE 1150 1 33.39 2000 1429 10.00 5.00 3.750 445 N40 10.00 9.30 7.219 1401 19.20 1749 14.40 ILSS BATT 4 741 11.5 11 7.70 177 11:52 9 693 57 56 8.92 737 SI 10 For Property Placed in Service after December 31, 2017: 30-Year Residential Rental Property Recovery Month Placed in Service Year 4 7 1 3.194 29172439 1.528 1.250 0.972 2-3 3.3333.333 3.333 3.333 3.3333333 3.3333333 3.333 31 0.1390417 0.094 0.972 1.250 1528 1.8062083 12 0.150 3.333 3.194 0417 3333 2912 3.333 2619 6.35 43 44 3.00 591 seg 591 seg 591 . Recovery 10 For Property Placed in Service after December 31, 1986, 40-Year Nonresidential Real Property Month Placed in Service Year 4 5 7 1 2.396 2.188 1.979 1.771 1.5531354 1.146 0.938 0.729 2.500 2.500 2.500 2.500 2.500 2.500 2.500 2.500 2.500 0.104 0.312 0.521 0.720 0.937 1.146 1.354 562 1.771 11 12 0.313 0.101 2500 2.500 2.187 2.30 0521 2.500 1.929 42 15 10 29 10 *Also used for residential rental property placed in service before 2018. *Switchever lo straight-line depreciation do