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

Question

. 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?

Explanation / Answer

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

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