Question

Problem 7-8 (Algorithmic)
Modified Accelerated Cost Recovery System (MACRS) (LO 7.4)

On January 8, 2017, Holly purchased a residential apartment building. The cost basis assigned to the building is $217,000. Holly also owns another residential apartment building that she purchased on April 15, 2017, with a cost basis of $464,000.

Click here to access the depreciation tables.

If required, round intermediate calculations and final answers to nearest dollar.

a. Calculate Holly's total depreciation deduction for the apartments for 2017 using MACRS.
$

b. Calculate Holly's total depreciation deduction for the apartments for 2018 using MACRS.
$

Answer 1

Answer a:

Depreciation deduction for 2017:

(i) Date of purchase: January 8, 2017.

From 1st Column of MACRs table, we get depreciation rate for Year 1 = 3.485%

Depreciation for 2017 = $217,000 * 3.485% = $7,562.45

(ii) Date of purchase: April 15, 2017.

From 4th Column of MACRs table, we get depreciation rate for Year 1 = 2.576%

Depreciation for 2017 = $464,000 * 2.576% = $11,952.64

Total depreciation deduction for the apartments for 2017 = $7,562.45 + $11,952.64 = $19,515.09

Total depreciation deduction for the apartments for 2017 = $19,515 (rounded off)

Answer b:

Depreciation rate for 2018 (Year 2) = 3.636%

Both the residential apartments are used for whole oh 2nd year.

Total depreciation deduction for the apartments for 2018 = ($217,000 + $464,000) * 3.636% = $24,761.16

Total depreciation deduction for the apartments for 2018 = $24,761 (rounded off)