To calculate Alt. Modified Accelerated Cost Recovery System depr.

Alternative Modified Accelerated Cost Recovery System (ALT MACRS) table depreciation uses the monthly or yearly rate information to determine the depreciation percentages for each year in an asset's life. The percentage is applied and the result is then divided across each period in the year to come up with the appropriate depreciation expenses. ALT MACRS calculations usually apply to only Alternative Minimum Tax (AMT) and Adjustment Current Earnings (ACE) type books. These methods should be used in accordance with United States Internal Revenue Service rules and tax regulations. There are two variations of ALT MACRS table depreciation:

  • ALT MACRS Table Daily
  • ALT MACRS Table Periodic
ALT MACRS Table Daily

In the ALT MACRS Table Daily formula, the yearly depreciation amount determined using a percentage from the LN rate tables is divided across the periods in the year using the following formula:

yearly depreciation = yearly depreciation percentage * cost

To calculate the depreciation for each period:

period depreciation = yearly depreciation amount * (days in period / days in year)
Example of ALT MACRS Table Daily
  • Year one

Your company uses a truck subject to alternative MACRS tax reporting. The truck has a cost of 28,500, a class life of 5.0 years and a in-service date of February 13, 1998. It is depreciated using the half year convention, and it was placed in service during the first half of the fiscal year. Management decides to depreciate it using the ALT MACRS tables.

LN uses the rate tables to determine the percentage used in calculating the annual percentage in each year. In the first year, the rate is 15% and LN calculates depreciation as follows:

(15% * $28,500) = $4,275

LN then calculates the depreciation expense for each period in that year according to the number of days in each period. In the first period of the asset's life, there were only 15 days, and there were only 321 days in the first year.

LN performs the following calculation for the first period:

$4,275 * (15 / 321) = $4,275 * .046758972 = $199.77

In the second period of the first year, there were 31 days. LN calculates depreciation as follows:

 
 $4,275 * (31 / 321) = $4,275 * .084931507 = $363.08
  • Year two

For the second year, LN uses the rate tables to determine that the rate for this year should be 25.50%. It calculates the yearly depreciation expense as follows:

(25.50% * 28,500) = $7,267.50

In the first period of year two, there are 31 days, so LN calculates depreciation for the period as follows:

$7,267.50 * ( 31 / 365) = $617.07
ALT MACRS Table Periodic

In MACRS Table Periodic formula, the yearly depreciation amount determined from the LN rate tables is divided evenly across each period in the year using the following formula:

yearly depreciation = yearly depreciation percentage * cost

To calculate the depreciation for each period:

Period depreciation = early depreciation amount / periods in year
Example of ALT MACRS Table Periodic
  • Year One

Your company has a truck subject to alternative MACRS tax reporting. The truck has a cost of 28,500, a class life of 5.0 years and a in-service date of February 13, 1998. It is depreciated using the half year convention, and it was placed in service during the first half of the fiscal year. Management decides to depreciate it using the ALT MACRS tables.

LN uses the rate tables to determine the percentage used in calculating the annual percentage in each year. In the first year, the rate is 15% and LN calculates depreciation as follows:

(15% * $28,500) = $4,275

LN then calculates the depreciation expense for each period in the year, without regard to the number of days in each period. There are only eleven periods in the first year of the asset's life. For each period in the first year, LN performs the following calculation:

$4,275 / 11 = $388.64

LN records a depreciation expense of $388.64 in each period of year one.

  • Year Two

For the second year, LN uses the rate tables to determine that the rate for this year should be 25.5%. It calculates the yearly depreciation expense as follows:

	 (25.50% * $28,500) = $7,267.50

For each period in the second year, LN performs the following calculation:

 $7,267.50 / 12 = $605.63

LN records a depreciation expense of $605.63 in each period of year two.