Question

Q 1:

On July 8, 2016, Celtic corporation, a calendar year taxpayer, purchased an apartment building for $1,500,000, of which $250,000 was allocatble to the land. On September 10, 2018, Celtic sells the building. Give the corporation's allowable depreciation deductions for the apartment building both for the year of purchase (2016) and for the year of sale (2018).

Q 2:

In January of 201 8, Matt purchased a Mercedes sedan for $95,000 to be used in his business as a self-employed realtor. Matt drove the care 80 percent of the time for business. What is the maximum amount that Matt may deduct m" 2018 assuming he elects to take bonus depreciation on this passenger car?

Q 3:

On May 19, 2018, Axe Corporation purchased office furniture (7-year property) costing $2,300,000 and computer equipment (5-year property) costing $400,000. Axe elects _not to take bonus depreciation on these assets but wants to take Section 179 expensing and MACRS depreciation instead. Compute Axe's Section 179 expense deduction and its MACRS depreciation deduction assuming that any expensing is used first on the 7-year assets before it is used on the 5-year assets. Assume also that Axe's taxable income for the year is $2 million before deductions are taken.

Q 4:

On November 1, 2015, Jenkins Corporation bought equipment (7-year property) for $190,000 and land improvements (15-year property) costing $86,000, for its new factory building which it purchased on September 1, 2015 for $1,200,000 of which $300,000 was allocable to the land. These were the only asset purchases for Jenkins during 2015. On June 6, 2018, Jenkins sold the building along with the equipment and land improvements. Compute Jenkins' allowable depreciation for the factory building, the equipment, and the land improvements both for the year of purchase 2015 and the year of sale 2018 assuming that Section 179 expensing and bonus depreciation were not used on any of these assets.

Answer 1

Ans 1: )

As mentioned in the question the apartment building has been purchased on July 8, 2016 and sold on September 10, 2018 thus using the mid-month convention for calculating depreciation the tax payer would be allowed to charge half month depreciation for both the month of purchase and sale of the building which would be:

For 2016: Half July + 5 Months = 5.5 Months

For 2017: 12 Months

For 2018: 8 Months + Half September = 8.5 Months

Hence the corporation’s allowable depreciation deduction based on a depreciable life of 27.5 years used for residential buildings under U.S taxation would be:

Depreciable Value = Cost of Building – Cost of Land

                                     = 1,500,000 – 250,000 = $ 1,250,000

For 2016 = 1,250,000 x (5.5/12) x (1/27.5)

                = $ 20,833

For 2017 = 1,250,000 x (1/27.5)

                = $ 45,455

For 2018 = 1,250,000 x (8.5/12) x (1/27.5)

                = $ 32,197