The initial investment on a commercial building was $1M excluding the land. The

Question

The initial investment on a commercial building was $1M excluding the land. The building March of the year in which it was purchased. After 10 years, the property was sold in the 1 September 2017 for $2M. The land cost was appraised at $100,000 for tax purposes was occupied in 1th year on (20 Points) i . Determine the first depreciation of the building. ii . What is the depreciation for in year in which the property is disposed. ii. What is the depreciation recapture for this asset? Cost cssh assett (C iv. What is the capital gain on this asset?

Explanation / Answer

Depreciation can be charged in Straight line method or any other method which is appropriate, in the afroresaid case the property consists of Building and land, there will be no depreciation on land , depreciation ion building is calculated as below:

i) Depreciation of the Building in straight line method::

(ii) Depreciation in the year of sale is nill, because the asset value becomes Nill i.e $0.1*10 = $1 million, therefore the entire asset gets depreciated at the end of 10th year resulting in zero depreciation for 11th year.

(iii) Depreciation recapture means the gain recieved from the sale of the depreciable capital property that must be reported as income.

(iv) Capital gain of the asset -

Sale price - Cost of the asset = $2million - $1million = $1Million

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