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. A 40-unit apartment building is placed into service on August 15, 2013 at a cost...

. A 40-unit apartment building is placed into service on August 15, 2013 at a cost of $1,000,000. The apartments will rent for $850-$1200 per month. The owners sell the apartment building on June 1, 2017 for $850,000. a) Find the depreciation deduction and unrecovered investment (Book Value) for each tax year involved. b) What is the difference between the Book Value and the sales price in 2017? c) What taxes will the owners owe, (or what tax credit will they receive) due to the sale in 2017? (Assume tax rate = 40%) d) If the apartments were sold for $950,000, ) What taxes will the owners owe, (or what tax credit will they receive) due to the sale in 2017?

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Expert Solution

Depreciation rate @10%
1st year 2nd year 3rd year 4th year 5th year
15-08-2013 Cost             10,00,000 100000 90000 81000 72900 32805
Depreciation 3,76,705
1st year cost*10/100
Next years (cost - accumulated depreciation previous years)*10/100
Note: here asset purchased and used in the first year more than 180 days so I have taken as a full year but in case of sold it was there less than 180 days so I have taken a half of the normal rate
Book value ( cost - Depreciation)                6,23,295
(-) Sales -8,50,000
Net profit              -2,26,705
If sale at 8,50,000 If sale at 9,50,000
Sale consideration                8,50,000 9,50,000
(-) book value -6,23,295 -6,23,295
Profit                2,26,705 3,26,705
Tax (2,26,705 *40/100) (3,26,705*40/100) 90682 130682

ekkarill92 answered 1 year ago
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