Question

On April 3, 2018, Terry purchased and placed in service a building that cost $2,000,000. An appraisal determined that 25% of the total cost was attributed to the value of the land. The bottom floor of the building is leased to a retail business for $32,000. The other floors of the building are rental apartments with an annual rent of $160,000. If required, round your answers to the nearest dollar. Click here to access the depreciation table to use for this problem. a. How is the property classified for MACRS? Residential rental real estate b. What is the life of the asset for MACRS? 27.5 years c. Terry's cost recovery deduction for 2018 is $---- This is the one I need help on, letter c

Answer 1

A) Property Cost amount to $2,000,000

Cost attributable to Land: Building 75% :25%

MACRS Conventions is applicable on the mid-month basis. Since Property place in service in the middile of month in which property is acquired

B) Life of the asset for MACRS 27.5Years as you given

C) MACRS cost recovery deduction 2018:

Amount of Land plus Building	2,000,000
Cost of Land 25%	(500,000)	(2000,000*0.25)
Cost of land	1,500,000
Bottom floor rent	32,000
Other floor Rent	160,000
Cost recovery Deduction	$192,000