On May 30, 2012, Jane signed a 20-year lease on a factory building to use for her business. The lease begins on June 1, 2012. In August 2012, Jane paid $300,000 for qualified leasehold improvements to the building. Jane takes additional first-year depreciation. Determine Jane's total deduction with respect to the leasehold improvements for 2012.
A)$2,890.
B)$150,000.
C)$151,445.
D)$300,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Jane is entitled to deduct 50% of the cost of the qualified leasehold improvements in 2012. So, her deduction is $150,000 (50% of $300,000). However, since the lease term is longer than 15 years and the improvements were made during the first year of the lease, Jane can also take additional first-year depreciation of 15% of the cost of the improvements. So, her total deduction for the leasehold improvements in 2012 is $151,445 ($150,000 + $1,445 from additional first-year depreciation). Therefore, the correct answer is (C) $151,445.

On May 30, 2012, Jane Signed a 20-Year Lease on a Factory