Question

bus small diag. 56. A building with business offices, a reception area, and numerous small a nosis rooms is placed in service by a group of three orthopedic surgeons January 4 for $650,000. a. What is the MACRS-GDS property class? b. Calculate the depreciation deduction for years 1, 4, and 7 if it is kept longer than 7 years.

Answer 1

56.

Modified Accelerated Cost Recovery System (MACRS) is the depreciation method approved by the US IRS. There are two types of MACRS - Alternative Depreciation System (ADS) and General Depreciation System(GDS).

The MACRS ADS is based on the straight- line depreciation and the MACRS-GDS is based on the double declining method.

Suppose a group of three surgeons use a building business offices, a reception area, and several diagnosis rooms. The cost of the building is $650,000 when it is placed on January

a.

MACRS-GDS property class is defined based on the description of the property. There are 8 property classes like 3 year property class, 5 year property class, 39 year property class.

The asset building with the business office would come under the building. The 39 year property class includes non residential real property.

b.

The depreciation for a building costing $650,000 and having 39 year property class would be:

Depreciation = d * Cost

Here, d is the depreciation rate taken form MACRS-GDS 39 year class property for various years.

The following table shows the depreciation rate and the amount of depreciation:

Year	Depreciation rate	Amount of depreciation
1	2.461%	$ 15,996.5 [=$650,000 * 2.461%]
4	2.564%	$ 16,666 [$650,000 * 2.564%]
7	2.5645	$16,666 [=$650,000 * 2.564%]

Hence, the depreciation deduction for year 1 is $15,996.5 for year 4 is $16,666 and for year 7 is $16,666.

26.

		Rate	Depreciation	Book value
1	$1,40,000	0.535%	$749	$1,39,251
2	$1,40,000	2.564%	$3589.60	$135661.40
3	$140000	2.564%	$3589.60	$132071.80
4	$140000	2.564%	$3589.60	$128482.20
5	$140000	2.564%	$2243.50	$126238.70
		Year 5 depreciation	=	14000*2.564%*7.5/12	2243.5