Question

You place a commercial building into service on November 11, 2021 costing $54,500,000. What is the depreciation expense allowed by the IRS for this building for tax years 2021? And 2022?

Answer 1

Depreciation means the amount a company writes off or deduct from the business' profit for tax purpose. It is a non-cash expense. The advantage of this can be taken while calculating tax for the business. There are many ways to deduct business expenses. Some expenses are deducted all at once in the year when they were incurred. These are:

• money spent for the item which one consumed immediately
• cost of doing business

Now the depreciation expense allowed by IRS for commercial building is as follow:

IRS has given guidelines to make deduction easier for the useful life of assets for depreciation purpose. One cannot identify exactly the useful life of an asset or when an asset will be used up. There are same concepts which is applicable to real estate. The commercial buildings are made in such a way that they can be used for 100 of years. IRS has given a universally applicable process, and a set depreciation periods for commercial buildings.

For commercial building the life of an asset set by IRS is 39 years. So as per the given statement we can see that commercial building value is $54,500,000 purchased on November 11, 2021. The depreciation expense for the year will be:($54,500,000/39)*50/365

*considering the calendar year and the use of property for 50 days in the year 2021 starting from November 11, 2021 to December 31,2021.

Depreciation value will be: $191,429.575

So, the value for the year 2022 will be: ($54,500,000-$191,429.575)/39: $13,92,527.45

As the life of depreciable asset will be 39 years in total.

Whenever commercial property is sold the IRS gives the tax benefit back through a process known as depreciation recapture.