On October 7 of year 1 Javier purchased a building, including the land it was on
ID: 2485143 • Letter: O
Question
On October 7 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 $1,304,500; $242,000 was allocated to the basis of the land and the remaining $1,062,500 was allocated to the basis of the building. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.)
a.Using MACRS, what is Javier’s depreciation expense on the building for years 1 through 3?
What would be the year 3 depreciation expense if the building was sold on May 12 of year 3?
Answer the question in part (a), except assume the building was purchased and placed in service on May 28 instead of October 7.
d.
Answer the question in part (a), except assume that the building is residential property
What would be the depreciation for 2015, 2016, and 2017 if the property were nonresidential property purchased and placed in service October 7, 1998 (assume the same original basis)?
a.Using MACRS, what is Javier’s depreciation expense on the building for years 1 through 3?
b.What would be the year 3 depreciation expense if the building was sold on May 12 of year 3?
c.Answer the question in part (a), except assume the building was purchased and placed in service on May 28 instead of October 7.
d.
Answer the question in part (a), except assume that the building is residential property
e.What would be the depreciation for 2015, 2016, and 2017 if the property were nonresidential property purchased and placed in service October 7, 1998 (assume the same original basis)?
Explanation / Answer
a.
Year
Method
Recovery period
Date placed in service
Original basis
Rate
Depreciation
1
SL
39
Oct-07
$10,62,500.00
0.321%
$3,411
2
2.564%
$27,243
3
2.564%
$27,243
b.
The building is sold in month 8 so depreciation for the year is for 8 minus one-half month =7.5 months.
Year
Method
Recovery period
Date placed in service
Original basis
Rate
Depreciation
3
SL
39
Oct-07
$10,62,500.00
2.564%
$27,243
Partial year
X 7.5/12
$17,027
c.
Year
Method
Recovery period
Date placed in service
Original basis
Rate
Depreciation
1
SL
39
May-28
$10,62,500.00
2.033%
$21,601
2
2.564%
$27,243
3
2.564%
$27,243
d.
If the property was residential real property, the building is depreciated over 27.5 years instead of 39 years. The depreciation for years 1 - 3 is computed as follows:
Year
Method
Recovery period
Date placed in service
Original basis
Rate
Depreciation
1
SL
27.5
Oct-07
$10,62,500.00
0.455%
$4,834
2
3.636%
$38,633
3
3.636%
$38,633
e.
If the property was nonresidential real property purchased in 1992, the depreciation for the 3 years is computed as follows for years 18, 19, and 20 in the depreciation table:
Year
Method
Recovery period
Date placed in service
Original basis
Rate
Depreciation
2015
SL
31.5
Oct-07
$10,62,500.00
3.175%
$33,734
2016
3.175%
$33,734
2017
3.175%
$33,734
Year
Method
Recovery period
Date placed in service
Original basis
Rate
Depreciation
1
SL
39
Oct-07
$10,62,500.00
0.321%
$3,411
2
2.564%
$27,243
3
2.564%
$27,243
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