Question

On March 1, 2019, Babar Inc., pays $1,200,000 for a store building, moves into the building, and begins business on April 1. Babar properly allocates $1,020,000 of its cost to the building and $200,000 to the land. On May 21, 2019, it installs $1,043,000 worth of new display shelving. Babar wants to claim the maximum allowable depreciation on the property it purchased but does not want to claim bonus depreciation. On January 2, 2022, Babar sells the land and building for $1,400,000 and the display shelving for $45,000.

Required:
Determine Babar's maximum depreciation deduction for 2019 and 2022.

Answer 1

2019

$204,3000

2022

No Depreciation

Step-by-step explanation:

Purchase Price of Store building = $1,200,000

Allocation

Building cost = $1,000,000

Land cost = $200,000

Display Shelving Installation cost = $1,043,000

The Land will not be depreciated, Building and Display shelving will be depreciated by 10% per year

2019

Depreciation

Full depreciation will be charged in the year of purchase.

Building = $1,000,000 x 10% = $100,000

Display Shelving = $1,043,000 x 10% = $104,300

Total Depreciation = $100,000 + $104,300 = $204,3000

2022

No depreciation will be charged in the year of sale.