Question

Janet purchased her personal residence in 2007 for $300,000. In January 2017, she converted it to rental property. The fair market value at the time of conversion was $250,000. (Use Table 6A-6) Determine the amount of cost recovery that can be taken in 2017: Determine the amount of cost recovery that could be taken in 2017 if the fair market value of the property were $388,000.

Answer 1

1) Cost recovery in 2017 = $9,092.5

Using straight line 27.5 year method = $ 250,000 × 3.637% = $ 9,092.5 ( $250,000 × 3.637 ÷ 100 = $9,092.5).

2)Cost recovery in 2017 of fair market value was $388,000 = $10,911.

Using straight line 27.5 year method, since the property was converted from residential to rental property for business use the less of $388,000 or $300,000 should be taken as fair market value. The $300,000 is less than $388,000.

= $300,000 × 3.637% = $10,911. ($300,000 × 3.637 ÷ 100 =$10,911) .