2. Cynda inherits a house that is divided into two apartments. She will live in

Question

2. Cynda inherits a house that is divided into two apartments. She will live in the west apartment and rent out the east apartment for $700 per month. There are two separate heat pumps, and the east apartment heat pump is broken. She pays $8000 for a replacement. It will be depreciated according to the schedules above. Assuming no other costs, show Cynda?s after tax earnings for the first two years of rental. Her tax rate is 29%. 3. Tech Nerd (2 points) Every year Victoria buys a new Apple laptop for $5,000. Because she uses them in her business, she depreciates them according the the schedules shown above. How much total depreciation does she claim each year for laptops?

Explanation / Answer

Before tax earnings of Cynda for year 1 = $ 8,400

Assuming the heat pump is replaced in year 1 , cost of replacement = $ 8000

Gross income for year 1 =$ 400

Net income for year 1 = Gross income X (1-tax rate)

Net income for year 1 =$ 400( 1-0.29) = $ 284

Gross income for year 2 = $ 8400

Net income for year 2 = $ 8400 X (1-0.29) = $ 5964

After tax earnings for 1 st 2 years = $ 6248

2) Laptops come under 5 years depreciation class

Cost of laptop $5,000 Year Percent to depreciate Amount to depreciate 1 20% $1,000 2 32% $1,600 3 19.20% $960.00 4 11.52% $576.00 5 11.52% $576.00 6 5.76% $288.00

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