Question

On June 8, 2021, Holly purchased a residential apartment building. The cost basis assigned to the building is $650,000. Holly also owns another residential apartment building that she purchased on October 15, 2021, with a cost basis of $400,000. a. Calculate Holly's total depreciation deduction for the apartments for 2021 using MACRS. b. Calculate Holly's total depreciation deduction for the apartments for 2022 using MACRS.

Answer 1

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Answer 2

a. To calculate Holly's total depreciation deduction for the apartments for 2021 using MACRS, we need to find the depreciation for each property and add them together.

For the apartment building purchased on June 8, 2021, we will use the mid-month convention and the MACRS 27.5-year recovery period for residential rental property. The depreciation deduction for 2021 is:

$650,000 x 3.636% = $23,634

For the apartment building purchased on October 15, 2021, we will use the mid-quarter convention and the MACRS 27.5-year recovery period for residential rental property. Since the building was purchased in the fourth quarter, we will assume that it was placed in service on November 1, 2021. The depreciation deduction for 2021 is:

$0

Therefore, Holly's total depreciation deduction for the apartments for 2021 using MACRS is:

$23,634

b. To calculate Holly's total depreciation deduction for the apartments for 2022 using MACRS, we need to find the depreciation for each property and add them together.

For the apartment building purchased on June 8, 2021, we will use the mid-month convention and the MACRS 27.5-year recovery period for residential rental property. The depreciation deduction for 2022 is:

($650,000 - $23,634) x 3.636% = $23,994

For the apartment building purchased on October 15, 2021, we will use the mid-quarter convention and the MACRS 27.5-year recovery period for residential rental property. The depreciation deduction for 2022 is:

$400,000 x 1.818% = $7,272

Therefore, Holly's total depreciation deduction for the apartments for 2022 using MACRS is:

$23,994 + $7,272 = $31,266