Tom Tom LLC purchased a rental house and land during the current year for $150,000. The purchase price was allocated as follows: $100,000 to the building and $50,000 to the land. The property was placed in service on May 22. Calculate Tom Tom's maximum depreciation for this first year:

Question

Quizplus · Accepted Answer

The building is depreciated over 27.5 years using the straight-line method, which gives us a depreciation expense of ($100,000/27.5) x 8/12 = $2,182.
The land cannot be depreciated, so the maximum depreciation expense for Tom Tom LLC for the first year is $2,182. However, since the property was placed in service on May 22, only 8 months of depreciation can be taken for the first year, which gives us a maximum depreciation expense of ($2,182/12) x 8 = $1,455. Adding bonus depreciation of 50% gives us a total maximum depreciation expense of $2,182 + ($2,182 x 50%) = $2,273. Thus, option B is the correct answer.

Tom Tom LLC Purchased a Rental House and Land During