Question

2019 Modified Accelerated Cost Recovery System (MACRS) (LO 8.2) On March 8, 2019, Holly purchased a...

2019

Modified Accelerated Cost Recovery System (MACRS) (LO 8.2) On March 8, 2019, Holly purchased a residential apartment building. The cost basis assigned to the building is $700,000. Holly also owns another residential apartment building that she purchased on October 15, 2019, with a cost basis of $400,000.

Please access the depreciation tables.

a. Calculate Holly's total depreciation deduction for the apartments for 2019 using MACRS. $ ________

Feedback MACRS allows taxpayers who invest in capital assets to write off an asset's cost over a period designated in the tax law and to use an accelerated method for depreciation of assets other than real estate. The minimum number of years over which the cost of an asset may be deducted (the recovery period) depends on the type of the property and the year in which the property was acquired. The calculation of depreciation expense for tax purposes involves certain conventions and limitations. Under MACRS, taxpayers calculate the depreciation of an asset using a table which contains a percentage rate for each year of the property's recovery period. The yearly rate is applied to the cost of the asset. The cost of the property to which the rate is applied is not reduced for prior years' depreciation. Note: There are different tables for residential realty (e.g., an apartment building) and nonresidential realty.

b. Calculate Holly's total depreciation deduction for the apartments for 2020 using MACRS. $__________

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Answer #1

SOLLUTION (a)

Date of purchase = March 8, 2019

March month of Year 1 of table Residential Rental Property - GDS is 2.879%.(As Per Table)
MACRS depreciation for this residential apartment building in 2019 = 2.879% * $700000

= $20153

Date of purchase = October 15, 2019

October 0.758 month of Year 1 of table Residential Rental Property - GDS is 0.758%

MACRS depreciation for this apartment in 2019 = 0.758% * $400,000

= $3032

Total depreciation deduction for 2019 = $20153 + $3032

= $23185

Sollution b

Both residential apartment building must have been used for the whole year in 2020.

January month of Year 2 of table Residential Rental Property - GDS is 3.636%.
Depreciation for 2020 = (3.636% * $700000) + (3.636% * $400000)

= $25452 + $14544

= $39996

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