Question

Jack purchased a new factory building on September 2, 2015, for $2,000,000. He elected the alternative depreciation system (ADS). Determine the cost recovery deduction for 2016.

1) $18,000
2) $50,000
3) $22,000
4) $15,000
5) None of these choices are correct.

Answer 1

The cost recovery deduction for 2016 under the alternative depreciation system (ADS) for Jack's factory building is $50,000.

Step-by-step explanation:

To determine the cost recovery deduction for 2016, we need to understand the alternative depreciation system (ADS). Under ADS, the cost recovery deduction is calculated based on the recovery period and the depreciation method.

For nonresidential real property, the recovery period is 40 years. The straight-line method is used, so the annual deduction is calculated by dividing the cost of the property by the recovery period.

In this case, the cost of the factory building is $2,000,000. So, the cost recovery deduction for 2016 would be $2,000,000 / 40 = $50,000.