Question

(3)  During Year X you and your employees completed and placed in service a self-constructed manufacturing facility for your Schedule C widget manufacturing business.

Additional facts:

• At the beginning of the year you paid $800,000 for the land on which to build.

• You paid a total of $1.1 million for building materials and supplies used in the construction, excluding sales tax.

• You also (but unhappily) paid $25,000 in sales tax on the purchases of those building materials and supplies.

• You paid your employees an aggregate total of $400,000 in wages for the days on which they worked on or in connection with the construction.

• You paid $100,000 for construction period workers’ compensation cover-age and other forms of commercial insurance coverage specific to the construction project and time period.

• You paid $75,000 in lease rentals for heavy equipment for use in the construction project.

• You had already owned certain other heavy equipment used in the project. The amount of otherwise proper tax depreciation deductions related to this equipment and properly allocable to the construction period was $30,000.

• You properly determined that $25,000 of G&A (general and administrative) costs were allocable to the construction period.

• You paid $15,000 in state inspection and certification costs related to the project.

On these facts, state your total depreciable basis in the new manufacturing facility.

Answer 1

The depreciable basis for new manufacturing facility:

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The general administrative cost is not added to the basis as administrative costs are period costs and usually charged to a passage of time.