Question

6.On November 10 of year 1 Javier purchased a building, including the land it was on, to assemble his new equipment. The total cost of the purchase was $1,300,000; 20% was allocated to the basis of the land and the remaining 80% was allocated to the basis of the building. Using MACRS, what is Javier’s depreciation expense on the building for year 2?

7.On March 25 of year 1 Javier purchased an apartment building, including the land it was on. The total cost of the purchase was $1,300,000; 20% was allocated to the basis of the land and the remaining 80% was allocated to the basis of the building. Using MACRS, what is Javier’s depreciation expense on the building for year 3?

Answer 1

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Answer 6 Amount assigned to Building = 1,300,000 * 80% 1,040,000 As per MACRS, non residential building recovery period is 39 years and Straight Line Depreciation rate will be charged SLM Depreciation rate = 100 / No of years 100/39 2.564% Year 2 Depreciation expenses = Original Basis * Rate of Depreciation 1,040,000 * 2.564% $ 26,666 Answer 7 Amount assigned to Building = 1,300,000 * 80% 1,040,000 As per MACRS, residential building recovery period is 27.5 years and Straight Line Depreciation rate will be charged SLM Depreciation rate = 100 / No of years 100/ 27.5 3.636% Year 3 Depreciation expenses = Original Basis * Rate of Depreciation 1,040,000 * 3.636% $ 37,814