Question

On December 15 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 $1,432,000; $317,000 was allocated to the basis of the land and the remaining $1,115,000 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 18 of year 3?

c. Assume the building was purchased and placed in service on November 5 instead of December 15. Using MACRS, what is Javier’s depreciation deduction on the building for years 1 through 3?    

d. Assume the building is residential property. Using MACRS, what is Javier’s depreciation deduction on the building for years 1 through 3?

e. What would be the depreciation for 2019, 2020, and 2021 if the property were nonresidential property purchased and placed in service December 15, 2002 (assume the same original basis)?

Answer 1

Required b

Cost of building= $1,115,000

Life as per MACRS = 39 years.

Rate of depreciation for year 3 = 2.564%

Since building sold on march 18 of year 3

Depreciation for year 3 = $1,115,000 * 2.564% * 2.5 / 12 = $5956

Required c

Depreciation for year 1 = 1,115,000 * 0.321% = 3579

Depreciation for year 2= 1,115,000 units * 2.564% = $28,589

Depreciation for year 3 = 1,115,000 units * 2.564% = $28,589

Required d

If the building is a residential property, life = 27.5 years

Depreciation for year 1 = 1,115,000 * 0.152% = $1,695

Depreciation for year 2= 1,115,000 units * 3.636% = $40,541

Depreciation for year 3 = 1,115,000 units * 3.636% = $40,541

Required e.

Depreciation for year 1 = 1,115,000 * 0.107% = $1193

Depreciation for year 2= 1,115,000 units * 2.564% = $28,589

Depreciation for year 3 = 1,115,000 units * 2.564% = $28,589

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