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Agribusiness Management � AM6 � Tax Management and Depreciation

Agribusiness Management: Tax Management and Depreciation Notes Page

Date _______________Topic___________________________________

-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Summary of Main Ideas-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐

-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Notes-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐

-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐M

ain Idea

s, Key Points, Formulas-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐

Goal of Tax Management

Taxable Income

Maximizing After-‐Tax Income

Categorizing Income

Categorizing Expenses



Date _______________Topic___________________________________


-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Notes-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐

-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Main Idea


Depreciation

Basis

Expensing



Date _______________Topic___________________________________


-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Notes-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐

-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Main Idea


Reducing Taxable Income

Increasing Taxable Income

MACRS Depreciation



Date _______________Topic___________________________________


-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Notes-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐

-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Main Idea


MACRS Depreciation cont.



Date _______________Topic___________________________________


-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Notes-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐

-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐Main Idea


Regular MACRS

Optional Straight-‐Line

Alternative MACRS


Agribusiness Management: Tax Management and Depreciation AM6.1

After-Tax Cash Cost Practice During the year, a farmer pays $1,800 principal and $500 interest on a tractor loan. His annual depreciation is $2,000. His deductible operating expenses (fuel, oil, repairs, etc.) associated with operating the tractor totaled $500. His marginal tax rate is 30%. What is his after-tax cash cost of using the tractor for the year? During the year, a farmer pays $1,800 principal and $500 interest on a tractor loan. His annual depreciation is $1,500. His deductible operating expenses (fuel, oil, repairs, etc.) associated with operating the tractor totaled $500. His marginal tax rate is 30%. What is his after-tax cash cost of using the tractor for the year? During the year, a farmer pays $1,850 principal and $500 interest on a tractor loan. His annual depreciation is $2,000. His deductible operating expenses (fuel, oil, repairs, etc.) associated with operating the tractor totaled $500. His marginal tax rate is 25%. What is his after-tax cash cost of using the tractor for the year?


Agribusiness Management: Tax Management and Depreciation AM6.1 KEY

After-Tax Cash Cost Practice During the year, a farmer pays $1,800 principal and $500 interest on a tractor loan. His annual depreciation is $2,000. His deductible operating expenses (fuel, oil, repairs, etc.) associated with operating the tractor totaled $500. His marginal tax rate is 30%. What is his after-tax cash cost of using the tractor for the year? Cash $1,800 principal + $500 interest + $500 operating costs = $2,800 Tax $2,000 depreciation + $500 interest + $500 operating costs = $3,000 $3,000 x .30 marginal tax rate = $900 $2,800 cash - $900 = $1,900 During the year, a farmer pays $1,800 principal and $500 interest on a tractor loan. His annual depreciation is $1,500. His deductible operating expenses (fuel, oil, repairs, etc.) associated with operating the tractor totaled $500. His marginal tax rate is 30%. What is his after-tax cash cost of using the tractor for the year? Cash $1,800 principal + $500 interest + $500 operating costs = $2,800 Tax $1,500 depreciation + $500 interest + $500 operating costs = $2,500 $2,500 x .30 marginal tax rate = $750 $2,800 cash - $750 = $2,050 During the year, a farmer pays $1,850 principal and $500 interest on a tractor loan. His annual depreciation is $2,000. His deductible operating expenses (fuel, oil, repairs, etc.) associated with operating the tractor totaled $500. His marginal tax rate is 25%. What is his after-tax cash cost of using the tractor for the year? Cash $1,850 principal + $500 interest + $500 operating costs = $2,850 Tax $2,000 depreciation + $500 interest + $500 operating costs = $3,000 $3,000 x .25 marginal tax rate = $750 $2,850 cash - $750 = $2,100



Basis and Expensing

Richard bought a used hay wagon. He traded a hay rake that had an undepreciated value of $75. He paid $275 cash difference. What is the basis on the hay wagon? Jerri traded a bull with an undepreciated value of $300 for two cows that cost $500 each. The difference was paid in cash. What is Jerri’s basis on the cows? Richard does not want to depreciate his hay wagon. Instead he decides to expense it. Can he do this, and if he can, how much more could he expense during the same tax year? Jerri has $50,000 in taxable income this year. She has not yet used any expensing. How much could she lower her taxable income if she could take full advantage of expensing?



Basis and Expensing

Richard bought a used hay wagon. He traded a hay rake that had an undepreciated value of $75. He paid $275 cash difference. What is the basis on the hay wagon? $75 + $275 = $350 Jerri traded a bull with an undepreciated value of $300 for two cows that cost $500 each. The difference was paid in cash. What is Jerri’s basis on the cows? 2 x $500 = $1000 The exchange of livestock of one sex for livestock of another sex is not considered a like-kind exchange. So, the tax basis of the cows is figured independently of the basis left in the bull. Richard does not want to depreciate his hay wagon. Instead he decides to expense it. Can he do this, and if he can, how much more could he expense during the same tax year? Yes - $10,000 - $350 = $9650 Jerri has $50,000 in taxable income this year. She has not yet used any expensing. How much could she lower her taxable income if she could take full advantage of expensing? $10,000



Farm Property Recovery Periods Farmer’s Tax Guide Table 7-1

Assets GDS

Recovery Period

ADS Recovery

Period

Agricultural structures (single purpose) 10 15 Automobiles 5 5 Calculators and copiers 5 6 Cattle (dairy or breeding) 5 7 Communication equipment 7 10 Computer and peripheral equipment 5 5 Drainage facilities 15 20 Farm buildings 20 25 Farm machinery and equipment 7 10 Fences (agricultural) 7 10 Goats and sheep (breeding) 5 5 Grain bin 7 10 Hogs (breeding) 3 3 Horses (age when placed in service) Breeding and working (12 years or less) 7 10 Breeding and working (more than 12 years) 3 10 Racing horses 3 12 Horticultural structures (single purpose) 10 15 Logging machinery and equipment 5 6 Nonresidential real property 39 40

Office furniture, fixtures, and equipment (not calculators, copiers, or typewriters) 7 10

Paved lots 15 20 Residential rental property 27.5 40 Tractor units (over-the-road) 3 4 Trees or vines bearing fruit or nuts 10 20 Truck (heavy duty, unloaded weight 13,000 lbs. or more) 5 6 Truck (actual weight less than 13,000 lbs.) 5 5 Water wells 15 20



Calculating Depreciation

Regular MACRS Jack purchased a grain bin for $14,000 on February 5th. He chooses to use regular MACRS. The midyear convention applies. The grain bin is in the 7-year property class.

Year 200% Declining-Balance Use Straight-Line Comparison

1

2

3

4

5

6

7

8



Optional Straight-Line Jack chooses to use optional straight-line depreciation instead of regular MACRS for the grain bin discussed on the previous page.



Alternative MACRS

Tom purchased a greenhouse in November for $12,000. This was the only depreciable purchase that he made. He chooses to depreciate the greenhouse using the alternative MACRS method. The mid-quarter convention applies.



Calculating Depreciation

Regular MACRS Jack purchased a grain bin for $14,000 on February 5th. He chooses to use regular MACRS. The midyear convention applies. The grain bin is in the 7-year property class.

Year 200% Declining-Balance Use Straight-Line Comparison

1

200% / 7 = .29 .29 x $14,000.00 = $4,060.00 $4,060.00 x ½ = $2,030.00

($14,000.00 / 7.5) x ½ = $933.33

2

200% / 7 = .29 .29 x ($14,000.00 - $2,030.00) = $3,471.30

$11,970.00 / 6.5 = $1,841.54

3

200% / 7 = .29 .29 x ($11,970.00 - $3,471.30) = $2,464.62

$8,498.70 / 5.5 = $1,545.22

4

200% / 7 = .29 .29 x ($8,498.70 - $2,464.62) = $1,749.88

$6,034.08 / 4.5 = $1,340.91

5

200% / 7 = .29 .29 x ($6,034.08 - $1,749.88) = $1,242.42

$4,284.20 / 3.5 = $1,224.06

6

200% / 7 = .29 .29 x ($4,284.20 - $1,242.42) = $882.12

$3,041.78 / 2.5 = $1,216.71

7

200% / 7 = .29 .29 x ($3,041.78 - $882.12) = $626.30

$1,825.07 / 1.5 = $1,216.71

8

200% / 7 = .29 .29 x ($2,159.66 - $626.30) = $444.67

$2,030.00 + 3,471.30 + 2,464.62 + 1,749.88 + 1,242.42 + 1,216.71 + 1,216.71 = $13,391.64 $14,000.00 - $13,391.64 = $608.36 for year 8



Optional Straight-Line Jack chooses to use optional straight-line deprecation instead of regular MACRS for the grain bin discussed on the previous page. 1) Calculate annual depreciation – amount will be depreciated in years two through seven $14,000 / 7 = $2,000 2) Calculate for first year using mid-year convention $14,000 / 7 x ½ = $1,000 3) Determine the amount to be depreciated the last year

a. Half of annual was depreciated the first year; therefore, remaining half ($1,000) is depreciated the last year, year 8

b. Determine the amount that has been depreciated in years one through seven. The remaining amount is depreciated in year 8 Year 1 = $1,000 Year 2 = $2,000 Year 3 = $2,000 Year 4 = $2,000 Year 5 = $2,000 Year 6 = $2,000 Year 7 = $2,000 Total = $13,000 $14,000 - $13,000 = $1,000 for year 8



Alternative MACRS

Tom purchased a greenhouse in November for $12,000. This was the only depreciable purchase that he made. He chooses to depreciate the greenhouse using the alternative MACRS method. The mid-quarter convention applies. 1) Determine property class for a greenhouse under alternative MACRS – 15 years 2) Calculate annual. This will depreciate in years 2-15; Basis / alternative MACRS years = annual $12,000 / 15 - $800 3) Calculate for the first year using mid-quarter convention ($12,000 / 15) x 1/8 = $100 4) Determine amount to be depreciated the last year

a. 1/8 was deducted the first year; therefore, the remaining 7/8 will be deducted the last year, year 16 ($12,000 / 15) x 7/8 = $700

b. Determine amount depreciated in years 1-15 Year 1 = $100 Year 2 = $800 Year 3 = $800 Year 4 = $800 Year 5 = $800 Year 6 = $800 Year 7 = $800 Year 8 = $800 Year 9 = $800 Year 10 = $800 Year 11 = $800 Year 12 = $800 Year 14 = $800 Year 15 = $800 Total = $11,300 $12,000 - $11,300 = $700 for year 16



CDE Income Tax Management Practice



CDE Income Tax Management Practice

$25,000 + $50,000 + $5,214 = $80,214

$80,214 x 19.133% = $15,347.34

$80,214 -‐ $10,000 = $70,214

$70,214 x 17.411% = $12,224.96

$5,214 x 19.133% = $$997.59

$80,214 x 1 = $80,214

$80,214 / 10 = $8,021.40



$10,000 + $15,000 + $3,025 = $28,025

$28,025 x 10.714% = $3,002.60

$28,025 -‐ $10,000 = $18,025

$18,025 x 18.750% = $3,379.69

$3,025 x 10.714% = $324.885

$3,025 -‐ $324.885 = $2,700

$28,025 x 7/8 = $24,521.88

$24,521 / 10 = $2,452.19



$21,000 -‐ $11,000 = $10,000 / 2 = $5,000

$5,000 x 13,393% = $669.65 $5,000 -‐ $669.65 = $4,330.35

$21,000 / 2 = $10,500

$10,500 / 10 = $1,050

$21,000 x 10.714% = $2,249.94



Tax Management News Report Find three articles on Yahoo Money, CNN Money, or MSN Money about tax management, tax breaks, tax problems, or current tax issues. Articles must be approved by your teacher. After reading the articles, with an assigned partner, finish the statements below for each article. Finally, create a 3-minute news broadcast/interview pertaining to the information learned from these articles. One person will be the news broadcaster, and the other can play any role pertinent to the information to be presented. Article #1 _____________________________________________________________________ The main idea of this was… Specific examples given were… I was surprised that… This article makes me wonder… Article #2 _____________________________________________________________________ The main idea of this was… Specific examples given were… I was surprised that… This article makes me wonder…



Article #3 _____________________________________________________________________ The main idea of this was… Specific examples given were… I was surprised that… This article makes me wonder…



Tax Management News Report Scoring Guide

15 points 10 points 5 points

News Report Length Interview lasted 9-10 minutes

Interview lasted 6-8 minutes

Interview lasted 5 minutes or less

News Report Content

Interview contained factual information gathered from all

three articles, but also brought in student’s personality, humor,

and opinion.

Interview contained factual information gathered from all

three articles.

Interview lacked factual information

from all three articles.

Overall Affect

News report was like an interview seen on TV. Students spoke clearly, were easily

understood, and showed knowledge of

their content.

News report was somewhat like an

interview seen on TV. Students spoke

clearly, were easily understood, and

showed knowledge of content.

News report lacked a resemblance to an

interview seen on TV and/or students

needed to speak more clearly and show

more knowledge of content.

Article Review

All three article reviews are fully

completed, noting facts for articles.

All three article reviews are fully

completed, but lacked actual notes from

articles themselves.

Not all article summaries were fully

completed.

Comments: Total __________________ / 45 points



Tax Management and Depreciation Alternative Evaluation

1. The goal of good tax management is to _______________________________. a. maximize net income b. maximize after-tax income c. maximize before-tax income d. maximize gross income

2. Which of the following is a way to reduce taxable income?

a. Use expensing b. Take money out of an Individual Retirement Account (IRA) c. Pay bills after January 1st d. Use straight-line depreciation

3. Which of the following can be used to increase taxable income?

a. Postpone sales b. Contribute to an IRA c. Postpone expenses and investments until after January 1st d. Use a deferred sales contract

4. Explain the difference between depreciable and a capitalized expense.

5. List three types of income. 1. 2. 3.

6. What is the maximum amount that one can expense in one year?

a. $5,000 b. $7,500 c. $9,000 d. $10,000

7. Paul bought three sows. He traded a boar with an undepreciated value of $200. He paid

$250 cash difference. What is his basis on the sows?

8. During the year, a farmer pays $1,850 principal and $500 interest on a tractor loan. His annual depreciation is $2,400. His deductible operating expenses (fuel, oil, repairs, etc.) associated with operating the tractor totaled $500. His marginal tax rate is 25%. What is his after-tax cash cost of using the tractor for the year?



On May 1, 2008, Mark bought a new tractor. Mark traded his old tractor which had a remaining book value of $7,155. Mark paid $25,000 "down" and financed the remaining $30,000 over 5 years at 8% interest. He elected to roll the remaining basis of his old tractor into the new one. 9. The tractor is A. 3-year property B. 5-year property C. 7-year property D. 10-year property E. None of the above

10. If Mark does not expense any of the cost of the tractor, then 2008 depreciation will be (use regular MACRS and mid-year convention) A. $3,445.09 B. $4,949.30 C. $5,892.70 D. $6,659.29 E. None of the above

11. If Mark expenses $10,000 of the tractor cost and uses the mid- quarter convention and regular MACRS, then 2008 depreciation will be A. $1,339.30 B. $5,587.89 C. $6,985.12 D. $9,779.06 E. None of the above

12. If Mark expenses the maximum allowable on the tractor and uses regular MACRS with the mid-year convention, then 1/1/09 remaining book value will be A. $0 B. $766.59 C. $3,445.09 D. $6,388.41 E. None of the above

13. If Mark does not claim an expense deduction and uses the mid-quarter convention and straight line depreciation over the alternate MACRS life, his 2008 depreciation will be A. $3,107.75 B. $3,884.69 C. $4,439.64 D. $5,549.55 E. None of the above 14. Under MACRS, a farm fence is classified as A. 3-year property B. 5-year property C. 7-year property D. 10-year property E. None of the above



ANNUAL DEPRECIATION PERCENTAGES FOR 5-YR PROPERTY, 150% DB _________________________________________________________________ MID-QUARTER CONVENTION Tax MID-YEAR Quarter placed in service -- Year CONVENTION 1 2 3 4 1 15.000% 26.250% 18.750% 11.250% 3.750% 2 25.500 22.125 24.375 26.625 28.875 3 17.850 16.520 17,062 18.637 20.212 4-5 16.660 16.520 16.763 16.567 16.404 6 8.330 2.065 6.287 10.354 14.355 Total 100.000 100.000 100.000 100.000 100.000 _________________________________________________________________ ANNUAL DEPRECIATION PERCENTAGES FOR 7-YR PROPERTY, 150% DB _________________________________________________________________ MID-QUARTER CONVENTION Tax MID-YEAR Quarter placed in service -- Year CONVENTION 1 2 3 4 1 10.714% 18.750% 13.393% 8.036% 2.679% 2 19.133 17.411 18.559 19.707 20.854 3 15.033 13.680 14.582 15.484 16.386 4 12.249 12.160 12.221 12.275 12.874 5-7 12.249 12.160 12.221 12.275 12.182 8 6.124 1.520 4.582 7.673 10.661 Total 100.000 100.000 100.000 100.000 100.000 _________________________________________________________________ ANNUAL FRACTIONS FOR STRAIGHT LINE OVER N YEARS (N less than 26) _________________________________________________________________ MID-QUARTER CONVENTION Tax MID-YEAR Quarter placed in service -- Year CONVENTION 1 2 3 4 1 1/2 7/8 5/8 3/8 1/8 2-N 1 1 1 1 1 N+1 1/2 1/8 3/8 5/8 7/8 _________________________________________________________________ Depreciation formula: Basis divided by N times number from above table. ANNUAL FRACTIONS FOR 27 1/2 YEAR PROPERTY, REGULAR MACRS _________________________________________________________________ Tax Month Placed in Service -- Year 1 2 3 4 5 6 7 8 9 10 11 12 1 11.5 10.5 9.5 8.5 7.5 6.5 5.5 4.5 3.5 2.5 1.5 0.5 2-27 12 12 12 12 12 12 12 12 12 12 12 12 28 6.5 7.5 8.5 9.5 10.5 11.5 12 12 12 12 12 12 29 -- -- -- -- -- -- 0.5 1.5 2.5 3.5 4.5 5.5 _________________________________________________________________ Depreciation formula: Basis divided by 27 1/2 divided by 12 times number from above table.



On March 1, 2007, Mary bought a new planter. Mary traded her old planter which had a remaining book value of $3,025. Mary paid $10,000 "down" and financed the remaining $15,000 over 3 years at 8% interest. She elected to roll the remaining basis of her old planter into the new one. 15. The planter is A. 3-year property B. 5-year property C. 7-year property D. 10-year property E. None of the above 16. If Mary does not expense any of the cost of the planter, then 2007 depreciation will be (use regular MACRS and mid- year convention) A. $1,395.50 B. $2,500.00 C. $2,678.50 D. $3,002.60 E. None of the above 17. If Mary expenses $10,000 of the planter cost and uses the mid-quarter convention and regular MACRS, then 2007 depreciation will be A. $567.19 B. $2,414.09 C. $3,379.69 D. $5,254.69 E. None of the above 18. If Mary expenses the maximum allowable on the planter and uses regular MACRS with the mid-year convention, then 1/1/08 remaining book value will be A. $0 B. $324.10 C. $2,700.90 D. $4,276.18 E. None of the above 19. If Mary does not claim an expense deduction and uses the mid-quarter convention and straight line depreciation over the alternate MACRS life, her 2007 depreciation will be A. $380.50 B. $1,000.00 C. $1,401.25 D. $2,452.19 E. None of the above 20. Under MACRS, a pickup truck is classified as A. 3-year property B. 5-year property C. 7-year property D. 10-year property E. None of the above



ANNUAL DEPRECIATION PERCENTAGES FOR 5-YR PROPERTY, 150% DB _________________________________________________________________ MID-QUARTER CONVENTION Tax MID-YEAR Quarter placed in service -- Year CONVENTION 1 2 3 4 1 15.000% 26.250% 18.750% 11.250% 3.750% 2 25.500 22.125 24.375 26.625 28.875 3 17.850 16.520 17,062 18.637 20.212 4-5 16.660 16.520 16.763 16.567 16.404 6 8.330 2.065 6.287 10.354 14.355 Total 100.000 100.000 100.000 100.000 100.000 _________________________________________________________________ ANNUAL DEPRECIATION PERCENTAGES FOR 7-YR PROPERTY, 150% DB _________________________________________________________________ MID-QUARTER CONVENTION Tax MID-YEAR Quarter placed in service -- Year CONVENTION 1 2 3 4 1 10.714% 18.750% 13.393% 8.036% 2.679% 2 19.133 17.411 18.559 19.707 20.854 3 15.033 13.680 14.582 15.484 16.386 4 12.249 12.160 12.221 12.275 12.874 5-7 12.249 12.160 12.221 12.275 12.182 8 6.124 1.520 4.582 7.673 10.661 Total 100.000 100.000 100.000 100.000 100.000 _________________________________________________________________ ANNUAL FRACTIONS FOR STRAIGHT LINE OVER N YEARS (N less than 26) _________________________________________________________________ MID-QUARTER CONVENTION Tax MID-YEAR Quarter placed in service -- Year CONVENTION 1 2 3 4 1 1/2 7/8 5/8 3/8 1/8 2-N 1 1 1 1 1 N+1 1/2 1/8 3/8 5/8 7/8 _________________________________________________________________ Depreciation formula: Basis divided by N times number from above table. ANNUAL FRACTIONS FOR 27 1/2 YEAR PROPERTY, REGULAR MACRS _________________________________________________________________ Tax Month Placed in Service -- Year 1 2 3 4 5 6 7 8 9 10 11 12 1 11.5 10.5 9.5 8.5 7.5 6.5 5.5 4.5 3.5 2.5 1.5 0.5 2-27 12 12 12 12 12 12 12 12 12 12 12 12 28 6.5 7.5 8.5 9.5 10.5 11.5 12 12 12 12 12 12 29 -- -- -- -- -- -- 0.5 1.5 2.5 3.5 4.5 5.5 _________________________________________________________________ Depreciation formula: Basis divided by 27 1/2 divided by 12 times number from above table.

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