Question

Using MACRS depreciation for a machine costing 90,000 falling the 5 year property class, find the taxable income (not taxes) in years 1 through 6 based on year 1 revenue of 18,000 increasing by 6,000 each year and year 1 expenses of 12,000 increasing by 7,000 each year. The machines is paid for upfront with no loans.

Answer 1

Depreciation for every year for 5 years =90000/5 = 18000

Year	1	2	3	4
Income	18000	24000	30000	36000
(-)expenses	12000	19000	26000	33000
(-) depreciation	18000	18000	18000	18000
Taxable income	0	0	0	0
Unabsorbed depreciation	12000	25000	39000	54000

For 5th year income=42000

Expenses=40000

Depreciation=18000

Taxable income=0

Unabsorbed depreciation=70000