Jenny constructed a building for use as a residential rental property.The cost of the building was $180,000,and it was placed in service on August 1,1990.The building has a 27.5-year MACRS life.What is the amount of depreciation on the building for 2013 for tax purposes?

Question

Quizplus · Accepted Answer

To calculate MACRS depreciation, we need to use the Half-year convention. Since the building was placed in service on August 1, 1990, it will be assumed to be placed in service on July 31, 1990. Thus, for 2013, we can use the following MACRS schedule:

Year 1: 3.636%
Year 2: 7.273%
Year 3: 10.909%
Year 4: 10.909%
Year 5: 10.909%
Year 6: 5.455%
Year 7: 5.455%

Since we are calculating depreciation for year 24, we can add up the depreciation rates for years 1-7 (3.636% + 7.273% + 10.909% + 10.909% + 10.909% + 5.455% + 4.182%) to get a total depreciation rate of 53.273%.

To calculate the depreciation expense for 2013, we need to multiply the total depreciable basis (which is the original cost, minus the land value) by the total depreciation rate:

$180,000 (cost) - $20,000 (land value) = $160,000 (depreciable basis) 
$160,000 (depreciable basis) x 53.273% (total depreciation rate) = $85,232 
$85,232 / 27.5 = $3,100.84 (rounded to nearest dollar)

Thus, the amount of depreciation on the building for 2013 for tax purposes is $6,547 (since we are assuming straight-line depreciation, and the building has a remaining life of (27.5 - 24) = 3.5 years, we can simply multiply the straight-line depreciation rate by the remaining depreciable basis: ($160,000 - $51,818) / 3.5 = $6,547).

Jenny Constructed a Building for Use as a Residential Rental