Question

Aspen Inn acquires a new hotel building in February 2020 at $845,000. On November 3, 2023, Aspen Inn sells the hotel building. What cost recovery deduction can the company take in 2023? Assume Aspen Inn follows a calendar year for tax purposes.

Answer 1

A hotel building is considered as a nonresidential property with a period of 39 years and the depreciation rate that should be used is 2.564%

Computation:

Cost recovery deduction = Cost of the asset * Depreciation rate

Cost recovery deduction = $ 845,000 * 2.564%

Cost recovery deduction = $ 21,665 per year

If you dispose of the property before the end of the recovery period, figure your

depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property.

Quarter Percentage

First - 12.5%

Second - 37.5%

Third - 62.5%

Fourth - 87.5%

Since the building was sold in November 2023 which is in the 4th quarter of the calendar year

Cost recovery deduction for the year 2023 is $21,665 * 87.50% : $ 18,957

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