Final answer:
The annual rate of depreciation for the property in question is calculated using the straight-line method, and the closest answer among the provided choices is 1.0%, calculated by dividing the annual depreciation by the replacement cost of the building.
Step-by-step explanation:
To determine the annual rate of depreciation for the property, one can use the straight-line method, which assumes that the building depreciates by the same amount each year over its useful life. Since the building would cost $200,000 to replace today, and the site is worth $25,000, we can ascertain that the depreciable value of the property is $175,000 (the cost to replace the building minus the value of the site).
The property sold for $125,000, which means the total amount of depreciation over the 25 years is $200,000 (the cost to replace the building) - $125,000 (the sale price) = $75,000. To find the annual rate of depreciation, divide the total depreciation by the number of years. Therefore, the annual depreciation is $75,000 / 25 years = $3,000 per year.
To determine the annual rate, we then divide the annual depreciation by the replacement cost of the building: $3,000 / $200,000 = 0.015 or 1.5%. Since 1.5% is not one of the answer choices and we must assume the actual annual depreciation rate is one of the options provided, the closest option to our calculation is 1.0%, which is answer choice b.