Question

Aaron Rodgers purchased an apartment building on August 1, 2019, for a total of $1.75 million of which $525,000 was the value of the land on which the apartment building was located.

Also, Aaron purchased 5-year class new business equipment for $32,750 on October 11, 2019. He elects not to immediately expense the equipment under §179 and elects not to take the additional first-year depreciation.

Aaron purchased no other business assets during 2019.

1. Determine Aaron’s depreciation on the apartment building for 2019.

b. Determine Aaron’s depreciation on the equipment for 2019.

                 

c. If Aaron sells the apartment building on June 8, 2026, how much depreciation deduction will Aaron take for the apartment building for 2026?

d. If Aaron sells the equipment on December 19, 2020, how much depreciation deduction will Aaron take for the equipment for 2020?

Answer 1

1.Aaron’s depreciation on the apartment building for 2019

An apartment building's annual depreciation deduction equals the property's total cost minus the land value, divided by 27.5. The IRS does not allow you to depreciate land.

($1750000-$525000)/27.5= $44,545 yearly depreciation . Tax year as per IRS is Jan - Dec.

Hence depreciation is allowable for 5 months.

Depreciation = $44,545 *5 /12= $ 18560 for 2019.

2.Aaron’s depreciation on the equipment for 2019

1. Subtract the asset's salvage value from its cost to determine the amount that can be depreciated = $32750 no salvage value

2. Divide this amount by the number of years in the asset's useful lifespan= 5 years

$32750/5 = $6550

3. Divide by 12 to tell you the monthly depreciation for the asset = $6550/12 = $ 546

Depreciation for equipment shall be $546*3 = $1638 for 2019

3.Depreciation deduction for the apartment building for 2026 for selling the apartment building

($1750000-$525000)/27.5= $44,545 yearly depreciation . Tax year as per IRS is Jan - Dec.

Depreciation=  $44,545 *5.5/12 = $ 20416 mid month convention.

4.Depreciation deduction for 2019 on selling the equipment on December 19, 2020

1. Subtract the asset's salvage value from its cost to determine the amount that can be depreciated = $32750 no salvage value

2. Divide this amount by the number of years in the asset's useful lifespan= 5 years

$32750/5 = $6550 is the depreciation for 2019