Question

Reliable Manufacturer, Inc. is a calendar year, accrual method C corporation that is in the business...

Reliable Manufacturer, Inc. is a calendar year, accrual method C corporation that is in the business of manufacturing widgets. Its taxable income averages $2,000,000 each year. On June 1, 2010, Reliable Manufacturer purchased a new manufacturing building in Minneapolis for $2,500,000. The land was allocated $500,000 and the building was allocated $2,000,000 of the purchase price. The building will be placed in service immediately upon purchase. Reliable Manufacturer occupied the building from June 1, 2010 through October 29, 2018. Reliable Manufacturer has entered into a purchase agreement to sell the land and the manufacturing building on October 29, 2018.

a.       What is the maximum tax cost recovery deduction Reliable Manufacturer can take on the manufacturing building in 2010? Please show your work and explain your calculations.

b.       What is the maximum tax cost recovery deduction Reliable Manufacturer can take on the manufacturing building in 2015 and 2016? Please show your work and explain your calculations.

c.       What is the maximum tax cost recovery deduction Reliable Manufacturer can take on the manufacturing building in 2018? Please show your work and explain your calculations.

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Answer #1

Answer:-

a. What is the maximum tax cost recovery deduction Reliable Manufacturer can take on the manufacturing building in 2010?

In the year 2010 =  purchase price * 5 %

= 2,000,000 * 5%

= $100,000

In the year 2010 =  $100,000 .

b).What is the maximum tax cost recovery deduction Reliable Manufacturer can take on the manufacturing building in 2015 and 2016?

In the year 2015,2016 = purchase price * 10%

= 2,000,000 * 10%

= $200,000

In the year 2015,2016 =  $200,000

c) . What is the maximum tax cost recovery deduction Reliable Manufacturer can take on the manufacturing building in 2018?

In the year 2018 = ( 2,000,000 / 10years ) / ( 2years * 10 months )

= 200,000 / 240

= $833.33

In the year 2018 = $833.33

Note:-

In this question i am folowed the stright line depreciation method .

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