*No depreciation for assets acquired and disposed of in the same year. [LO 2] On November 10 of year 1 Javier purchased a building, including the land it was on, to assemble his new equipment. The total cost of the purchase was $1,200,000; $300,000 was allocated to the basis of the land and the remaining $900,000 was allocated to the basis of the building. MACRS, what is Javier’s depreciation expense on the building for years 1 through 3? What would be the year 3 depreciation expense if the building was sold on August 1 of year 3? Answer the question in part (a), except assume the building was purchased and placed in service on March 3 instead of November 10. Answer the question in part (a), except assume that the building is residential property. What would be the depreciation for 2012, 2013, and 2014 if the property were nonresidential property purchased and placed in service November 10, 1995 (assume the same original basis)? a. The depreciation for the 3 is computed as follows: Date (1) (2) (1) x (2) Recovery Placed in Original Year Method Period Service Basis Rate Depreciation 1 SL 39 Nov. 10 $900,000 0.321% $2,889 2 $900,000 2.564% $23,076 3 $900,000 2.564% $23,076 b. The depreciation for year 3 would be $14,423 and is computed as follows (The building is sold in month 8 so depreciation for the year is for 8 minus one-half month =7.5 months.): Date Recovery Placed in (1) (2) (1) x (2) Year Method Period Service Rate Depreciation 3 SL 39 Nov. 10 $900,000 2.564% $23,076 Partial year x 7.5/12 $14,423 c. The depreciation for years 1 3 is computed as follows (note that years 2 and 3 are the – same): Date (1) (2) (1) x (2) Recovery Placed in Original Year Method Period Service Basis Rate Depreciation 1 SL 39 3 $900,000 2.033% $18,297 2 $900,000 2.564% $23,076
*No depreciation for assets acquired and disposed of in the same year. [LO 2] On November 10 of year 1 Javier purchased a building, including the land it was on, to assemble his new equipment. The total cost of the purchase was $1,200,000; $300,000 was allocated to the basis of the land and the remaining $900,000 was allocated to the basis of the building. MACRS, what is Javier’s depreciation expense on the building for years 1 through 3? What would be the year 3 depreciation expense if the building was sold on August 1 of year 3? Answer the question in part (a), except assume the building was purchased and placed in service on March 3 instead of November 10. Answer the question in part (a), except assume that the building is residential property. What would be the depreciation for 2012, 2013, and 2014 if the property were nonresidential property purchased and placed in service November 10, 1995 (assume the same original basis)? a. The depreciation for the 3 is computed as follows: Year Method Recovery Period Date Placed in Service (1) Original Basis (2) Rate (1) x (2) Depreciation 1 SL 39 Nov. 10 $900,000 0.321% $2,889 2 $900,000 2.564% $23,076 3 $900,000 2.564% $23,076 b. The depreciation for year 3 would be $14,423 and is computed as follows (The building is sold in month 8 so depreciation for the year is for 8 minus one-half month =7.5 months.): Year Method Recovery Period Date Placed in Service (1) (2) Rate (1) x (2) Depreciation 3 SL 39 Nov. 10 $900,000 2.564% $23,076 Partial year x 7.5/12 $14,423 c. The depreciation for years 1 – 3 is computed as follows (note that years 2 and 3 are the same): Year Method Recovery Period Date Placed in Service (1) Original Basis (2) Rate (1) x (2) Depreciation 1 SL 39 3 $900,000 2.033% $18,297 2 $900,000 2.564% $23,076