Example 4a : Dow Chemical purchased a new plant for $4,000,000 on May 15, 2016 .

ID: 2593066 • Letter: E

Question

Example

: Dow Chemical purchased a new plant for $4,000,000 on May 15, 2016

. $1,500,000 of the purchase price is allocated to the land the plant is built on while the remainder of the purchase price is

allocated to the plant. What is Dow Chemical’s depreciation deduction in 2016?

Example 4b: Assume Dow Chemical added a wing to the plant costing $900,000. How is the addition

treated for tax purposes?

Example

: Assume that Dow Chemical sells the plant on April 12, 2022. What is Dow Chemical’s

depreciation deduction in 2022?

4 a Answer :-

Basis of building = $2,500,000

No Depreciation in land.

2016 = $2,500,000 × 0.1605 = $40,125

4b Answer:-

4 c. Answer :-

2022 = $2,500,000 × 0.2564 = $64,100

64100 × (4-.5/12) = $18,695.83

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