Paola purchased an office building on January 5,2014,for $450,000.$30,000 of the price was for the land.On September 25,2016,he sold the office building.What is the cost recovery deduction for 2016 rounded to the nearest dollar?

Question

Quizplus · Accepted Answer

To calculate the cost recovery deduction for 2016, we need to determine the depreciable basis of the building. The depreciable basis is the original cost of the building minus the cost of the land.

Original cost of the building = $450,000 
Cost of land = $30,000

Depreciable basis = $450,000 - $30,000 = $420,000

Assuming Paola used straight-line depreciation, she would depreciate the building over 39 years. So, the annual depreciation expense would be:

$420,000 ÷ 39 = $10,769 per year

The office building was sold on September 25, 2016, so Paola would have used the building for 8.75 years (January 5, 2014, to September 25, 2016).

Therefore, the cost recovery deduction for 2016 would be:

$10,769 x (8.75 ÷ 39) = $2,419

Rounding to the nearest dollar gives us $7,628.

Paola Purchased an Office Building on January 5,2014,for $450,000