Company G, a calendar year taxpayer, purchased a five-story building on April 2 of the current year for $1 million.The building, which has no historical or architectural significance, was constructed in 1946 by the previous owner, who had fully depreciated it before selling it to Company G.The first floor is occupied by shops and restaurants, the other four by apartments.Income will be $50,000 from commercial rents and $150,000 from residential rents.The deduction for depreciation that the company may claim for the building is about

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Quizplus · Accepted Answer

The correct answer is based on the Modified Accelerated Cost Recovery System (MACRS) used for depreciation in the United States. Since the building is used for both residential and commercial purposes, different depreciation schedules apply. Residential rental property is depreciated over 27.5 years, and nonresidential real property (like commercial property) is depreciated over 39 years. Given the mixed-use nature of the building, the depreciation expense must be allocated proportionally based on the income generated from each use. However, without specific percentages provided for how the $1 million purchase price should be allocated between the residential and commercial portions, a precise calculation can't be made. The closest estimate given the options and considering a prorated amount for the part of the year the property was in use, would be option B, which seems to be a reasonable approximation under a typical scenario.

Company G, a Calendar Year Taxpayer, Purchased a Five-Story Building