The percentages in MACRS GDS for real property were calculated based on the foll

Question

The percentages in MACRS GDS for real property were calculated based on the following principles:
• Residential rental property is depreciated with a half-month depreciation is allowed in the first month of placement.
• Both classes use straight-line depreciation with a half month of depreciation is allowed in the first month of placement.
• Salvage value are assumed to be zero for all assets.
If a company purchased a commercial building at $20M in March 2011, how much depreciation can the company claim in 2011? 2012? 2040? 2041? Assume the purchase price included equal amount of land value and the price for the building?

Explanation / Answer

since this is a commercial building, it's classified as non residential property. Recovery period for Non Residential property Under MACRS GDS = 39 years. Price of land = 10 million Price of building = 10 million Depreciation can be claimed for only the price of building. The property is bought on March 2011. So, in the first year it gets half month depreciation for the march month and all of april to December. i.e, for 9.5 months in the first year. Depreciaton, Dt = pt * P p1 = (9.5/12) * 1/39 D1 = p1 * p = (9.5/12) * 1/39 * 10 * 10^6 = $ 202,991.4 for the year 2012, full 12 months can be considered so P2 = 1/39 D2 = p2 * p = 1/39 * 10 * 10^6 = $ 256,410.2 for the year 2040, it's the last year, and depreciation can be claimed for 2.5 months not covered in first year. P39 = (2.5/12) * 1/39 D39 = p39 * p = (2.5/12) * 1/39 * 10*10^6 = $ 53,418.8 for the year 2041, No depreciation can be claimed since recovery period is only 39 years. D40 = 0

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.