Question
In: Accounting
On December 15 of year 1 Javier purchased a building, including the land it was on,...
On December 15 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 $1,432,000; $317,000 was allocated to the basis of the land and the remaining $1,115,000 was allocated to the basis of the building.
Using MACRS, what is Javier’s depreciation deduction on the building for years 1 through 3?
What would be the year 3 depreciation deduction if the building was sold on March 18 of year 3?
Assume the building was purchased and placed in service on November 5 instead of December 15. Using MACRS, what is Javier’s depreciation deduction on the building for years 1 through 3?
Assume the building is residential property. Using MACRS, what is Javier’s depreciation deduction on the building for years 1 through 3?
What would be the depreciation for 2018, 2019, and 2020 if the property were nonresidential property purchased and placed in service December 15, 2001 (assume the same original basis)?
Solutions
Expert Solution
| a | Computation of Depreciation for Years 1 through 3 | ||||
| Recovery method - Straight line | |||||
| Recovery period - 39 years for Non residential property | |||||
| Date placed in service - December 15 | |||||
| Cost of Building - $1,115,000 | |||||
| Year | Date placed in service | Original basis | Rate | Depreciation amount( Original basis x Rate) | |
| Year 1 | Dec-15 | $1,115,000 | 0.107% | $1,190.82 | |
| Year 2 | $1,115,000 | 2.564% | $28,588.60 | ||
| Year 3 | $1,115,000 | 2.564% | $28,588.60 | ||
| b | If building was sold on March 18 of Year 3 | ||||
| Year | Date of sale | Original basis | Rate | Depreciation amount( Original basis x Rate) | |
| Year 3 | Mar-18 | $1,115,000 | 0.534% | $5,954.10 | |
| c | Computation of Depreciation for Years 1 through 3 , if placed in service on Nov 5 | ||||
| Recovery method - Straight line | |||||
| Recovery period - 39 years for Non residential property | |||||
| Date placed in service - November 5 | |||||
| Cost of Building - $1,115,000 | |||||
| Year | Date placed in service | Original basis | Rate | Depreciation amount( Original basis x Rate) | |
| Year 1 | Nov-05 | $1,115,000 | 0.320% | $3,568.00 | |
| Year 2 | $1,115,000 | 2.564% | $28,588.60 | ||
| Year 3 | $1,115,000 | 2.564% | $28,588.60 | ||
| d | If Building is Residential property | ||||
| Recovery method - Straight line | |||||
| Recovery period - 27.5 years for Residential property | |||||
| Date placed in service - December 15 | |||||
| Cost of Building - $1,115,000 | |||||
| Year | Date placed in service | Original basis | Rate | Depreciation amount( Original basis x Rate) | |
| Year 1 | Dec-15 | $1,115,000 | 0.152% | $1,689.23 | |
| Year 2 | $1,115,000 | 3.636% | $40,541.40 | ||
| Year 3 | $1,115,000 | 3.636% | $40,541.40 | ||
| e | Depreciation for 2018,2019 and 2020 for Non residential property | ||||
| Recovery method - Straight line | |||||
| Recovery period - 39 years for Non residential property | |||||
| Date placed in service - Dec 15,2001 | |||||
| Cost of Building - $1,115,000 | |||||
| Year | Date placed in service | Original basis | Rate | Depreciation amount( Original basis x Rate) | |
| Year 18(2018) | $1,115,000 | 2.564% | $28,588.60 | ||
| Year 19(2019) | $1,115,000 | 2.564% | $28,588.60 | ||
| Year 20(2020) | $1,115,000 | 2.564% | $28,588.60 |
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