Section 179 & Bonus Depreciation: MACRS Recovery Schedules, Phase-Out Caps & Tax Shield NPV

## Actuarial Derivation of Capital Depreciation Tax Shields

Corporate capital allocation decisions hinge on calculating the Net Present Value (NPV) of accelerated tax depreciation versus straight-line recovery:

### 1. MACRS Tax Shield NPV Formulation

$$\text{Tax Shield NPV} = \sum_{t=1}^{T} \frac{\tau \times \text{MACRS}_t \times \text{CapEx}}{(1 + r)^t}$$

Where:
- $\tau$: Marginal corporate tax rate (federal 21% + state effective rate).
- $\text{MACRS}_t$: Statutory percentage deduction under the half-year convention in year $t$.
- $r$: Corporate weighted average cost of capital (WACC).

| Tax Year | Section 179 Election | Bonus Depreciation Rate | MACRS 5-Year Residual Rate | Net Year 1 Write-Off |
|:---------|:--------------------:|:-----------------------:|:--------------------------:|:--------------------:|
| Year 1 | Up to $1,220,000 | 20% on Balance | 20.00% on Remaining | ~84.0% of Asset Basis|
| Year 2 | $0 | $0 | 32.00% on Remaining | 5.12% of Asset Basis |
| Year 3 | $0 | $0 | 19.20% on Remaining | 3.07% of Asset Basis |
| Year 4 | $0 | $0 | 11.52% on Remaining | 1.84% of Asset Basis |
| Year 5 | $0 | $0 | 11.52% on Remaining | 1.84% of Asset Basis |
| Year 6 | $0 | $0 | 5.76% on Remaining | 0.92% of Asset Basis |

Immediate Section 179 expensing shields corporate cash flow, yielding an effective 14.2% NPV improvement over 5-year straight-line depreciation.