A residence was constructed in 1986 for $72,000 on a lot that cost $14,000. Before the...

A residence was constructed in 1986 for $72,000 on a lot that cost $14,000. Before the property was converted to rental use in the current year, a finished porch costing $8,000 was added and a $3,000 casualty loss was claimed. If the fair market value on the date of conversion to rental use was $84,000 ($74,000 for the house and $10,000 allocated for the land), what is the depreciable basis?

A.$84,000
B.$74,000
C.$72,000
D.$77,000

During the current year, Liquid Corporation, a calendar-year taxpayer, purchased and placed in service the following assets on the following dates:

Machine	$ 6,400	February 1
Truck	20,000	October 15
Computer	8,000	December 1

The three assets are all 5-year property under MACRS. The Sec. 179 and bonus depreciation deductions were not elected. What is Liquid’s depreciation deduction?

A.$1,720
B.$3,440
C.$6,880
D.$3,640

Solutions

Expert Solution

Ans.a A residence was constructed in 1986 for $72,000 on a lot that cost $14,000. Before the property was converted to rental use in the current year, a finished porch costing $8,000 was added and a $3,000 casualty loss was claimed. If the fair market value on the date of conversion to rental use was $84,000 ($74,000 for the house and $10,000 allocated for the land).

Depreciable Basis= Acquisition cost of an asset + Finishing porch cost - casualty loss

= $72,000 + $8,000 - $3,000

= $77,000.

Hence, $77,000 is a depreciable basis.

Ans.b

Depreciation For Recovery Period

Recovery year	5 year	Depreciation	Book value
1	20%	$6,880	$27,520
2	32%	$11,008	$16,512
3	19.20%	$6,605	$9,907
4	11.52%	$3,963	$5,944
5	11.52%	$3,963	$1981
6	5.76%	$1,981	$0

Asset Cost = Machine + Truck + Computer

=$6,400 + $20,000+ $8,000

=$34,400

MACRS Depreciation for 1 year= Asset Cost x 1/Useful Life

=$34,400*1/5

=$6,880

Hence, The Liquid’s depreciation deduction is $6,880.

ekkarill92 answered 2 months ago

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