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Fox Realty purchased a residential property for $1,500,000 and allocated the purchase price to land and...

Fox Realty purchased a residential property for $1,500,000 and allocated the purchase price to land and building in the amounts of $350,000 and $1,150,000, respectively. Fox Realty obtain the certificate of occupancy and placed the property in Service on June 1st. What is the amount of depreciation expense Fox Realty will deduct in year one (rounded) A. $20,909. B. $15,972. C. $29,545. D. $16,730. E. $22,650

please show calculations as well thank you

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Answer #1

Option E. 22650

Depreciation is allowed only for building and not for land. So the depreciable value is 1150000 dollars.

In normal practice the expected life of a building is 27.5 years. That is depreciation is chargable at the rate 3.636% every year. But if it is put to service for less than one year (put to service in the middle of an year) then the rate for the first year will as follows

January

3.485%

February

3.182%

March

2.879%

April

2.576%

May

2.273%

June

1.970%

July

1.667%

August

1.364%

September

1.061%

October

0.758%

November

0.455%

December

0.152%

Depreciation =1150000 * 1.969=22650

Depreciation for the first year is 22650

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