Simmons LLC purchased an office building and land several years ago for $250,000. The purchase price was allocated as follows: $200,000 to the building and $50,000 to the land. The property was placed in service on October 2. If the property is disposed of on February 27 during the 10^th year, calculate Simmons's maximum depreciation in the 10^th year. (Use MACRS Table 5.) A)$641 B)$909 C)$5,128 D)$7,346 E)None of the choices are correct.

Question

Quizplus · Accepted Answer

The building is depreciated over 39 years using the straight-line method under MACRS. For the 10th year, the depreciation is calculated for the months the building was in service (January and February), which is 2/12 of the annual depreciation. The annual depreciation is $200,000 / 39 = $5,128.21. Therefore, the depreciation for the 10th year is $5,128.21 * 2/12 = $854.70. However, since the building was disposed of in February, the mid-month convention applies, and the depreciation is halved for February, resulting in $641.

Simmons LLC Purchased an Office Building and Land Several Years