Question

8) You purchase a commercial building and lot for $350,000 on May 2nd, 2017. The lot is estimated to be worth $80,000 when you buy it. You sell it for $500,000 in September 15th of 2018. What is your allowable TAX depreciation amount for 2017?

Using the data from problem #8, what is your allowable TAX depreciation amount for 2018?

Answer 1

Solution:-

If the total cost of Commercial building and Lot is $ 3,50,000 and out of that the cost of Lot is $ 80,000 then the purchase cost of Commercial building is $ 2,70,000 ie. (3,50,000-80,000). Now if both the Assets are purchased as on May 2017 then full year depreciation will be allowed as the Asset is used for more than 180 days (ie. from 02/05/2017-31/03/2018) in the year as per Income tax. Therefore whatever the rate of depreciation is given will be applied on the Cost of commercial building separately and Lot separtely.

If as on September 15, 2018 the Asset is sold then half year's depreciation will be allowed because the Asset is used for less than 180 days (ie. from 01/04/2018-15/09/2018). Therefore on the WDV value as on 31/03/2018 depreciation will be charged for half year that is 50% of the total amount and then after deducting depreciation for both year, whatever will be the WDV will be used to get the capital gain (ie. Sale consideration-WDV)

Hope this helps