Question

On January 16 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 $1,346,000; $386,000 was allocated to the basis of the land and the remaining $960,000 was allocated to the basis of the building. (Use MACRS Table 1, Table 2, Table 3, Table 4and Table 5.) (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

a. Using MACRS, what is Javier’s depreciation expense on the building for years 1 through 3?

Answer 1

As per problem, the building is not for residential purpose, so for non-residential building MACRS Table 7 is used. The building is put to use in Jan, so depreciation rate applicable for 1^st year is 2.461% and for the 2^nd and 3^rd year the depreciation rate would be 2.564%.

The cost of purchase allocated to building is $960000, the depreciation exp. on the building for years 1 to 3 are:

Year 1 = 960000 * 2.461% = $23625.60

Year 2 & 3 = 960000 * 2.564% = $24614.40