Question

Question 1

[The information presented here applies to questions 1 - 5] You acquire an industrial property for $4.5M. If the land value is assessed at $600,000, what is the annual value of the depreciation allowance?

1 points

Question 2

In the first year of ownership, you replace the roof of the building at a cost of $80,000. If the IRS defined economic life of the roof is 20 years, what is the annual value of the depreciation allowance associated with this capital expenditure if the allowance is depreciated on a straight-line basis?

1 points

Question 3

If you sell the property after 10 years, what is its book value (assume that you get a depreciation allowance for the new roof in every year of ownership)?

1 points

Question 4

What is the taxable capital gain if you sell the building for $7.0M after 10 years?

1 points

Question 5

What is the capital gains tax due if the tax on capital appreciation is 20% and the depreciation recapture tax is 25%? What is the capital gains tax due if the tax on capital appreciation is 20% and the depreciation recapture tax is 25%?

Answer 1

Question 1 :

Annual value of depreciation :

Depreciation % = 600000 - 450000 / 450000 * 100

= 33.33333 %

Depreciation value = 600000 * 33.33333%

Annual depreciation value = $ 200000

Question 2 :

Annual value of depreciation for roof :

Roof replacement = $ 80000

Life = 20 years

Method = straight line method

Depreciation P.A = 80000 / 20yrs

= $ 4000

Question 3 :

Property cost = $ 450000

Roof enhancement = $ 80000

Total = $ 530000

Less : depreciation = $ 265000

Net Amount = $ 265000

Question 4 :

Taxable capital gain :

Sale value = $ 700000

Book value = $ 265000

Capital gain = $ 435000