Question

eldridge purchases a golf course on long island for a cost of $1,000,000. after performing a cost segregation analysis it is determined that $150,000 of cost may be allocated to the land preparation costs and the underground irrigation system. which statement is true about the cost recovery deduction for the golf course? a. eldridge may depreciate the full $1 million cost over 39 years. b. eldridge may depreciate $850,000 of the cost over 39 years and $150,000 over 15 years a land improvement c. eldridge may depreciate only the land improvement costs over 15 years. d. none of the above

Answer 1

The correct cost recovery deduction for the golf course involves depreciating $850,000 over 39 years and $150,000 over 15 years as land improvement, separating real property from land improvements with different recovery periods.

Step-by-step explanation:

The question addresses the cost recovery deduction for a golf course purchased on Long Island by an individual named Eldridge, with particular attention to how to depreciate the costs associated with the purchase. According to the given scenario, Eldridge purchases the golf course at a total cost of $1,000,000 and performs a cost segregation analysis which determines that $150,000 can be allocated to the land preparation costs and the underground irrigation system. The correct statement about the cost recovery deduction for the golf course would be: Eldridge may depreciate $850,000 of the cost over 39 years and $150,000 over 15 years as land improvement. This decomposition separates the depreciable real property, generally depreciated over 39 years for commercial real estate, from the land improvements which typically have a shorter recovery period of 15 years under current tax law.