In January 2016, Iris Corporation purchased and placed in service a 1933 buildin

Question

In January 2016, Iris Corporation purchased and placed in service a 1933 building that houses retail businesses. The cost was $300,000, of which $25,000 applied to the land. In modernizing the facility, Iris Corporation incurred $312,000 of renovation costs of the type that qualify for the rehabilitation credit. These improvements were placed in service in October 2017.

The MACRS straight-line depreciation for nonresidential real property assuming mid-month convention for year 2 for property placed into service in January is the 2.564%. The MACRS straight-line depreciation for nonresidential real property assuming mid-month convention for year 1 for property placed into service in October is the 0.535%.

If required, round your answers to the nearest dollar.

a. Iris Corporation's rehabilitation tax credit for 2017 is $.

b. The cost recovery deduction for the building is $ and the building improvements for 2017 is $

Explanation / Answer

a. The rehabilitation expenditures credit is 10% of $312,000 = $31,200.
b. Cost recovery of building
[$300,000 - $25,000 (land)] × 2.564% $7,051
Plus: Cost recovery of improvements
Cost of improvements $312,000
Less: Rehabilitation expenditures credit (31,200)
Depreciable basis $280,800
Cost of recovery of improvements
($280,800 × 0.535%) 1,502
Total cost recovery for the year $8,553

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