Problem 7-8 (Algorithmic) Modified Accelerated Cost Recovery System (MACRS) (LO

Question

Problem 7-8 (Algorithmic)
Modified Accelerated Cost Recovery System (MACRS) (LO 7.4)

On February 8, 2016, Holly purchased a residential apartment building. The cost basis assigned to the building is $193,000. Holly also owns another residential apartment building that she purchased on February 15, 2016, with a cost basis of $255,000.

Click here to access the depreciation tables.

If required, round intermediate calculations and final answers to nearest dollar.

a. Calculate Holly's total depreciation deduction for the apartments for 2016 using MACRS.
$

b. Calculate Holly's total depreciation deduction for the apartments for 2017 using MACRS.
$

TABLE 7.4 Straight-Line Depreciation for Real Property Assuming Mid-Month Convention* 27.5-Year Residential Real Property The applicable annual percentage is (use the column for the month in the first year the property is placed in service) Recovery Year s) 9 10 12 2-18 19-27 28 29 3.485 3.182 2.879 2.576 2.273 1.970 1.667 1.364 .06 0.758 0.455 0.152 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637 3.6373.637 3.637 3.637 3.637 3.637 1.970 2.273 2.576 2.879 3.182 3.485 3.636 3.636 3.6363.636 3.636 3.636 0.000 0.000 0.000 0.000 0.000 0.000 0.152 0.455 0.758 1.06 .364 1667 39-YearNonresidential Real Property The applicable annual percentage is (use the column for the month in the first year the property is placed in service) Recovery Year(s) 9 10 12 2.461 2.247 2.033 1.819 .605 1.391 1.177 0.9630.749 0.535 0.321 0.107 2.564 2.5642.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.5642.564 0.107 0.321 0.535 0.749 0.963 1.177 1.39 1.605 1.819 2.033 2.247 2.461 2-39 40 he official tables contain a separate row for each year. For ease of presentation, certain years are grouped together in these two tables. In some instances, this will produce a difference of.001 percent when compared with the official tables

Explanation / Answer

a) The date of purchase of residential apartment building is 8 February, 2016. February is 2nd month. Thus the applicable MACRS depreciation rate will be from Column 2 and Row 1 of table 7.4 (i.e. 3.182%). Another residential apartment is also purchased in the month of february (i.e. on 15 february, 2016), therefore its relevant depreciation rate is also 3.182% for first year.

Total Depreciation deduction for 2016 = ($193,000*3.182%)+($255,000*3.182%)

= $6,141.26+$8,114.10 = $14,255.36

b) Both residential apartment building would have been used for whole year. the relevant rate is from Row 2 of Table 7.4 MACRS depreciation table (i.e. 3.636%)

Total Depreciation deduction for 2016 = ($193,000*3.636%)+($255,000*3.636%)

= $7,017.48+$9,271.80 = $16,289.28

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