Investment Tax Credit (ITC) Example

Here is an example of MACRS personal property placed in service in 2015 with an unadjusted basis of $50,000 and an estimated life of 5 years. Let’s assume it qualifies for the energy credit which requires the basis of the asset to be reduced by 50% of the credit amount and the taxpayer has elected out of bonus depreciation. Most of the other investment credits require the basis to be reduced by 100% of the credit.

Reducing the basis:
5-year property unadjusted basis	$50,000
Full ITC rate	x .10
	$5,000
Beginning basis Less: one-half of $5,000 ITC Depreciable basis	$ 50,000 - 2,500 $ 47,500
Depreciation for 2015 20% of $47,500	= $ 9,500
Depreciation for 2016 32% of $47,500	= $15,200
Depreciation for 2017 19.2% of $47,500	= $ 9,120
Depreciation for 2018 11.52% of $47,500	= $ 5,472
Depreciation for 2019 11.52% of $47,500	= $ 5,472
Depreciation for 2020 5.76% of $47,500	= $ 2,736