Question

Frank operates a construction business in Dallas, Texas. On May 1, 2019, Frank purchased a warehouse for his business.

• The warehouse cost $1,500,000 ($500,000 for land and $1,000,000 for improvements).

In November 2019, Frank purchased the following business property:

• Equipment for $100,000, light-duty truck for $50,000, and office furniture and equipment for $50,000.

Please calculate Frank’s 2019 depreciation deductions. Be sure to explain your calculations fully.

What income would Frank report if he decided to sell the warehouse and equipment on January 1, 2021 so he could upgrade the business?

• Assume he could sell the warehouse for $1,500,000 and the equipment for $190,000 ($95,000 for equipment, $47,500 for truck, and $47,500 for office furniture and equipment).  Be sure to fully explain your answer.

Answer 1

solution:

The land is non-reduction merely warehouse is 39 years reduction nonresidential real estate.

The mid-quarter custom is suitable on private premises as every property is located in service through fourth quarter. Mid quarter reduction tables utilized in computation.

Reduction for the year 2019 is:

	(a)		(b)	(a) X (b)
Property	MACRS Basis	Recovery period	Rate	MACRS Reduction
Equipment	$       100,000	7 year	3.57%	$     3,570.00
Truck	$         50,000	5 year	5.00%	$     2,500.00
Furniture	$         50,000	7 year	3.57%	$     1,785.00
Building	$    1,000,000	39 years	1.605%	$   16,050.00
Cost recovery				$   23,905.00

Reduction for 2020 is:

	(a)		(b)	(a) X (b)
Property	MACRS Basis	Recovery period	Reduction Rate	MACRS Reduction
Equipment	$       100,000	7 year	27.55%	$   27,550.00
Truck	$         50,000	5 year	38.00%	$   19,000.00
Furniture	$         50,000	7 year	27.55%	$   13,775.00
Building	$    1,000,000	39 years	2.564%	$   25,640.00
Cost recovery				$   85,965.00

Throughout 2021 assets are traded. Reduction for 2021 is:

Reduction on the warehouse is determined following mid-month convocation. The asset is traded in January. one-half month discount is recognized as a sequence.

Equipment, truck, also furniture are traded in fourth quarter. They utilize mid quarter convocation. Only half-quarter deserving reduction provided as assets are sold in first quarter.
Reduction for 2021 is:

Property	MACRS Basis	Recovery period	Depreciation Rate	MACRS depreciation	× allowed percent	Allowed depreciation
Equipment	$       100,000	7 year	19.68%	$   19,680.00	0.125	$     2,460.00
Truck	$         50,000	5 year	22.80%	$   11,400.00	0.125	$     1,425.00
Furniture	$         50,000	7 year	19.68%	$     9,840.00	0.125	$     1,230.00
Building	$    1,000,000	39 years	2.564%	$   25,640.00	0.041667	$     1,068.33
Cost recovery						$     6,183.33

profit or loss on sale of assets is:

Particulars	Equipment	Truck	Furniture	Land and Building
Cost	$          100,000	$            50,000	$            50,000	$       1,500,000
low: reduction
year 2019	$         3,570.00	$         2,500.00	$         1,785.00	$      16,050.00
year 2020	$      27,550.00	$      19,000.00	$      13,775.00	$      25,640.00
year 2021	$         2,460.00	$         1,425.00	$         1,230.00	$         1,068.33
Adjusted basis	$      66,420.00	$      27,075.00	$      33,210.00	$ 1,457,241.67
Selling price	$            95,000	$            47,500	$            47,500	$       1,500,000
low: adjusted basis	$      66,420.00	$      27,075.00	$      33,210.00	$ 1,457,241.67
profiton sale of asset	$      28,580.00	$      20,425.00	$      14,290.00	$      42,758.33
Total profit	$    106,053.33

Total profit on trade of assets is $106,053.33