Question

9-31) In 2016 T, a calendar year taxpayer, decided to move her insurance business into another office building. She purchased a used building for $700,000 (excluding the land) on March 15. T also purchased new office furniture for the building. The furniture was acquired for $200,000 on May 1. Compute MACRS depreciation. Ignore first-year expensing and bonus depreciation. MACRS depreciation tables are located in the Appendix.

Compute T’s depreciation deduction for 2016.

Compute T’s depreciation deduction for 2017.

Assuming the T sold the office building and the furniture on July 20, 2018, compute T’s depreciation for 2018. Answer (a), (b), and (c) above assuming that the furniture was purchased on October 20.

Answer 1

For the year 2016,

• Depreciation on building = 700,000 * 2.033% = $14,231
• Depreciation on Furniture = 200,000 * 14.29% = $28,580

For the year 2017

• Depreciation on building = 700,000 * 2.564% = $17,948
• Depreciation on Furniture = 200,000 * 24.49% = $48,980

For the year 2018

• Depreciation on building = 700,000 * 2.564% * 6.5 / 12 = $9,722
• Depreciation on Furniture = 200,000 * 17.49% * 1 / 2 = $17,490

If Furniture was purchased on October 20, mid quater convention is used in the calculation of depreciation of furniture. However depreciation on building remains the same.

For 2016

Depreciation on furniture = 200,000 * 3.57% = $7,140

For 2017

Depreciation on furniture = 200,000 * 27.55% = $55,100

For 2018

Depreciation on furniture = 200,000 * 19.68% *2.5 / 4 = $24600

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