Question

2. On July 1, 20XX, paid $600,000 for a commercial building and an additional $150,000 for the land on which it stands. Four years later, also on July 1, sold the property for $850,000. Compute the MACRS depreciation for each of the five calendar years during which the property was owned.

Answer 1

Solution:

Year	Depreciation Expense
1	$                    7,062
2	$                  15,384
3	$                  15,384
4	$                  15,384
5	$                    8,333

Working:

Year	Building Price [a]	Macrs Rate July Month Convention( July Month, 1st Year and Last year)(b)	Depreciation Expense(a*b)
1	$               600,000	1.177%	$                               7,062.00
2	$               600,000	2.564%	$                             15,384.00
3	$               600,000	2.564%	$                             15,384.00
4	$               600,000	2.564%	$                             15,384.00
5	$               600,000	1.389%	$                               8,333.00

5th Year MACRS Depreciation = 2.564% * 6.5/12 = 1.389%