Question

Carl purchased an apartment complex for $1,100,000 million on March 17 of year 1. $300,000 of the purchase price was attributable to the land the complex sits on. He also installed new furniture into half of the units at a cost of $60,000. (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.)

a. What is Carl's allowable depreciation expense for his real property for years 1 and 2?

b. What is Carl's allowable depreciation expense for year 3 if the real property is sold on January 2 of year 3? (Do not round intermediate computations.)

Answer 1

1.Carl's allowable depreciation expense for his real property for years 1 and 2

Year	Method	Recovery Period	Date Placed	Basis	Rate (%)	Depreciation
1	SL	27.5	March 17	$ 800000	2.879	$ 23,032
2	SL			$ 800000	3.636	$ 29,088

Depreciation Year 1 = $ 23,032

Depreciation Year 2 = $ 29,088

2.Carl's allowable depreciation expense for year 3 if the real property is sold on January 2 of year 3

Year	Method	Recovery Period	Date Placed	Basis	Rate (%)	Depreciation
3	SL	27.5	March 17	$ 800000	3.636	$ 29,088
Partial Year***						x..50/12
						$ 1212

***mid- month convention applies to real property in year of acquisition and year of disposition

Allowable depreciation expense = $ 1212