Question

: Problem 5-37 (LO. 7) On May 5, 2021, Christy purchased and placed in service a hotel. The hotel cost $10,800,000, and the land cost $1,200,000 ($12,000,000 In total). Calculate Christy's cost recovery deductions for 2021 and 2031. If required, round your answers to the nearest dollar. Click here to access the depreciation table to use for this problem. a. How is the property classified for MACRS? Nonresidential real estate ✓ b. What is the life of the asset for MACRS? 39 years c. Calculate Christy's cost recovery deductions for 2021 and 2031. 2021: $ 2031: S Check My Work Both realty and personalty can be either business use/income producing property or personal use property. Assets used in a trade or business or for the production of income are eligible for cost recovery if they are subject to wear and tear, decay or decline from natural causes, or obsolescence. Under MACRS, the cost of most real property is recovered using the straight-line method.

Answer 1

Christy's hotel property is classified as nonresidential real estate, and the asset's useful life for MACRS is 39 years. The cost recovery deductions for 2021 and 2031 can be calculated using the straight-line method.

Step-by-step explanation:

Christy's hotel property is classified as nonresidential real estate for purposes of MACRS (Modified Accelerated Cost Recovery System).

The life of the asset for MACRS is 39 years.

To calculate Christy's cost recovery deductions for 2021 and 2031, you can use the straight-line method. The straight-line method allocates equal deductions each year over the useful life of the asset. In this case, the hotel cost $10,800,000 and the land cost $1,200,000, making the total cost $12,000,000. To calculate the deduction for a particular year, divide the total cost by the asset's useful life and multiply by the number of years since the asset was placed in service. For 2021, the deduction would be ($12,000,000 / 39) * 1. For 2031, the deduction would be ($12,000,000 / 39) * 11.