Question

Carl purchased an apartment complex for $2.6 million on March 17 of year 1. of the purchase price, $1,050,000 was attributable to the land the complex sits on. He also installed new furniture into half of the units at a cost of $75,000. What is Carl's allowable depreciation deduction for his real property for years 1 and 2? (Round your final answers to the nearest whole dollar amount.)

Answer 1

total depreciation year 1 = $71,358

total depreciation year 2 = $80,358

Step-by-step explanation:

Land cannot be depreciated, therefore Carl can only depreciate the building's cost = $2,600,000 - $1,050,000 = $1,550,000

Rental property can be depreciated at a fixed rate of 3.636% per year during 27.5 years. Depreciation per year for the building = $56,358

Furniture on rental property can be depreciated on a 5 year basis using a MACRS table and half year convention:

depreciation year 1 = 20% x $75,000 = $15,000

depreciation year 2 = 32% x $75,000 = $24,000

total depreciation year 1 = $56,358 + $15,000 = $71,358

total depreciation year 2 = $56,358 + $24,000 = $80,358