Question

Doug purchased a new factory building on January 15, 1990, for $400,000. On March 1, 2017, the building was sold. Determine the cost recovery deduction for the year of the sale; Doug did not use the MACRS straight-line method.

a. $12,696
b. $0
c. $1,587
d. $2,645
e. None of these choices are correct.

Answer 1

D) $2,645

Step-by-step explanation:

Non residential real estate purchased before May 3, 1993 has to be amortized during a 31.5 year life. Real estate purchased and put in service after that date can be amortized in 39 years.

to calculate the cost recovery deduction we can use the following equation:

cost recovery reduction = (1 / 31.5) x $400,000 x (2.5 / 12) = 0.03174 x $400,000 x 0.2083 = $2,644.58 ≈ $2,645