Corporate Tax Accounting, CapEx Modeling & Capital Budgeting
MACRS 200% DB & IRC §168(k) Bonus Depreciation Formula
Calculate IRC Section 168(k) First-Year Bonus Depreciation ($M), Combined Year-1 MACRS Half-Year 200% Declining-Balance Deduction ($M), Cash Tax Shield ($M), and Adjusted End-of-Year-1 Tax Basis ($M).
Apply regular Year-1 MACRS to remaining basis AFTER bonus depreciation—never to gross CapEx!
When modeling capital equipment under IRC Section 168, first-year tax depreciation combines two sequential layers: first, IRC §168(k) Bonus Depreciation expenses Cost * Bonus_Pct immediately; second, regular Modified Accelerated Cost Recovery System (MACRS) 200% Declining-Balance with the Half-Year Convention applies 0.5 * (2 / Recovery_Years) ONLY to the remaining unexpensed basis Cost * (1 - Bonus_Pct)! Multiplying the 20.0% Year-1 5-year MACRS rate by gross equipment cost double-counts basis already written off via bonus depreciation. In a shared Arte Sheets capital-budgeting workbook, a tax analyst in the suggester role can propose updating Bonus_Depr_Pct in Suggest Mode—which proposes cell value or formula edits without changing cell styles—and @mention the controller in a whole-cell comment anchored to E3 before the owner accepts.
Verify on a $10.00M Manufacturing Line Acquisition—Equipment_Cost = $10.00M (B2), Bonus_Depr_Pct = 0.60 (60.0% phase-down tier, B3 -> Bonus Deduction = $6.00M in E2), MACRS_Recovery_Years = 5 (5-year 200% DB class -> Year-1 half-year rate = 0.5 * (2 / 5) = 20.0% on the $4.00M remaining basis = $0.80M, B4), and Corporate_Tax_Rate = 0.25 (25.0%, B5): Total Year-1 Tax Deduction is 6.00 + 0.80 = $6.80M (E3—not $8.00M!), Year-1 Cash Tax Shield is 6.80 * 0.25 = $1.70M (E4), and End-of-Year-1 Adjusted Tax Basis is 10.00 - 6.80 = $3.20M (E5)!
| Year-1 Tax Depreciation KPI ($10.0M CapEx, 60% Bonus, 5-Yr MACRS, 25% Tax) | Formula | Verified Output |
|---|---|---|
| IRC §168(k) Bonus Depreciation ($M) | Equipment_Cost * Bonus_Pct | $6.00M ($10.00M @ 100%) |
| Total Year-1 Tax Deduction ($M) | Bonus + (Cost - Bonus) * 0.5 * (2 / Years) | $6.80M ($2.00M @ 0% Bonus) |
| Year-1 Cash Tax Shield ($M) | Total_Year1_Deduction * Tax_Rate | $1.70M ($2.50M @ 100%) |
| End-of-Year-1 Tax Basis ($M) | Equipment_Cost - Total_Year1_Deduction | $3.20M ($0.00M @ 100%) |
Sequential Bonus + Half-Year 200% DB MACRS Year-1 Formula
Validate Equipment_Cost > 0, Bonus_Pct in [0, 1], Recovery_Years >= 3, and Tax_Rate in [0, 0.55)!
=LET(cp_x, B2, bn_p, B3, yr_m, B4, tx_r, B5, IF(OR(cp_x <= 0, bn_p < 0, bn_p > 1, yr_m < 3, tx_r < 0, tx_r >= 0.55), "Invalid MACRS Input", LET(bn_d, cp_x * bn_p, rg_d, (cp_x - bn_d) * 0.5 * (2 / yr_m), ROUND(bn_d + rg_d, 2))))100% Full Expensing vs 0% Bonus Phase-Out Sensitivity Checks
Test B3 = 1.00 (100% full expensing): Total Year-1 Deduction E3 equals $10.00M ($2.50M tax shield E4, $0.00M remaining basis E5). Now test B3 = 0.00 (post-phase-out 0% bonus): Year-1 Deduction E3 drops to pure half-year 5-year MACRS of $2.00M, leaving $8.00M of remaining basis E5 for Years 2–6!
=IF(ISTEXT(E3), E3, ROUND(B2 - E3, 2))Try the example
Use the original values or change them to test your understanding.