Question

Spike purchased on 6/15/2020 and placed in service on 9/1/2020 a new warehouse for $5,000,000.

(a) Determine the cost recovery deduction for 2020.​​

(b) Spike sold the warehouse on March 22, 2028. Determine the cost recovery deduction for 2028.

Answer 1

Based on the information available in the question, we can answer as follows:-

Requirement A:-

The asset was placed in service on 09/01/2020.

The asset will be depreciated using a 39 year asset Class life under the MACRS Depreciation method.

Cost Recovery = $5,000,000 * 0.749%(asset was placed in service during the 9th month)

Cost Recovery for 2020 = $37,450

Requirement B:-

Since the asset was sold during March 22, 2018 and since the asset was depreciated using the 39 year depreciation asset class life, the asset will be depreciated using the Mid Month convention. Under the mid month convention, the depreciation is 50% of the actual depreciation if the asset is sold during the year.

As such, the total cost recovery deduction for Warehosue for 2028 is :-

Cost Recovery for warehouse = $5,000,000 * 2.564% * 1/2

Cost Recovery for warehouse for 2028 = $64,100

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