John purchases residential rental property on June 30, 2016 for a cost of $290,000. Of this amount, $140,000 is allocable to the cost of the home and the remaining $150,000 is allocable to the cost of the land. What is John's maximum depreciation deduction for 2016?

Question

Quizplus · Accepted Answer

The maximum depreciation deduction for residential rental property placed in service after May 12, 1993, is $2,560 for the first year. However, since John purchased the property on June 30, 2016, he is only entitled to a partial year's depreciation deduction. The partial year's depreciation deduction is calculated by multiplying the full year's depreciation deduction by the number of months the property was in service during the year. In this case, the property was in service for 6 months (July 1, 2016 - December 31, 2016). Therefore, John's maximum depreciation deduction for 2016 is $2,560 x 6/12 = $1,280. However, since the cost of the land is not depreciable, John's maximum depreciation deduction for 2016 is $1,280 x $140,000/$290,000 = $640.

John Purchases Residential Rental Property on June 30, 2016 for a Cost