Diane purchased a factory building on April 15, 1993, for $5,000,000. She sells the factory building on February 2,2019. Determine the cost recovery deduction for the year of the sale.
A) $16,025
B) $19,838
C) $26,458
D) $158,750

Question

Quizplus · Accepted Answer

The cost recovery deduction for the year of the sale is calculated based on the depreciation method applicable to the property. For a factory building, which is considered non-residential real property, the Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 39 years is used. The deduction for a partial year is prorated based on the number of months the property was in service during the year of sale. Since the building was sold in February, it was in service for 1 month in the year of sale. The annual depreciation for a $5,000,000 property over 39 years is approximately $128,205.13 ($5,000,000 / 39). For 1 month, the deduction is $128,205.13 / 12 = $10,683.76. However, none of the provided options match this calculation directly, suggesting a need for the specific depreciation method details used in the question. Given the options, B) $19,838 is the closest to a reasonable annual depreciation amount, but without the specific method or convention used for the final year's calculation, the exact match to the provided options requires additional context. The correct answer based on the options provided and typical depreciation calculations would be an approximation or a specific rule applied for the sale year that isn't detailed in the question.

Diane Purchased a Factory Building on April 15, 1993, for $5,000,000