Calculate Lopez’s cost recovery deduction for 2019 if the building is: a. Classified as residential rental real estate. b. Classified as nonresidential real estate.

Lopez acquired a building on June 1, 2014, for $1 million. Calculate Lopez’s cost recovery deduction for 2019 if the building is:

a. Classified as residential rental real estate.

b. Classified as nonresidential real estate.

Expert Solution

The IRS provides tables that specify cost recovery allowances for personalty and for realty. Under MACRS, the cost recovery period for residential rental real estate is 27.5 years and the straightline method is used for computing the cost recovery allowance. Nonresidential real estate uses a recovery period of 39 years; it also is depreciated using the straight-line method. Cost recovery is computed by multiplying the applicable rate by the cost recovery basis (Exhibit 8.8).

a.

Residential rental real estate: $1,000,000 × 0.03636 = $36,360.

b.

Nonresidential rental real estate: $1,000,000 × 0.02564 = $25,640.

a. Residential rental real estate: $36,360.

b. Nonresidential rental real estate: $25,640.

Renze Joy Candido answered 2 years ago

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