Question

On May 12 of year 1 Javier purchased a building, including the land it was on, to assemble his new equipment. The total cost of the purchase was $1,495,000; $450,000 was allocated to the basis of the land and the remaining $1,045,000 was allocated to the basis of the building. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.) (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) b. What would be the year 3 depreciation deduction if the building was sold on March 11 of year 3.

Answer 1

Based on the information available in the question, The depreciation deduction for Year 3 if the building was sold on March 11 of year is 3 is calculated as follows:-

Please note that the Building falls under the category of Non residential property and hence would be depreciated under the Mid month convention. Under the mid month convention , the asset would be considered as been in service for one half of the month when the asset is placed in service or disposed off. Hence, the number of months the asset is in service during the Year 3 is :-

2 full months + 0.5 month(march) = 2.5 months

Per MACRS depreciation rules, buildings are depreciated under the "39 years asset class"

The depreciation expense for the 3rd year of buildings is:- $1,045,000 * 2.564% * 2.5/12

=5,582.041

The depreciation expense for the 3rd year on Buildings :- $5,582(Rounded)