Question

Simmons LLC purchased an office building and land several years ago for $250,000. The purchase price was allocated as follows: $200,000 to the building and $50,000 to the land. The property was placed in service on October 2. If the property is disposed of on February 27 during the 10th year, calculate Simmons' maximum depreciation in the 10th year: A. $641 B. $909 C. $5,128 D. $7,346 E. None of these B.

Answer 1

Answer:

A.$641

Explanation:

Non-residential property has a 39-year recovery period.

Since the property was disposed of in the 10th year = 10/39 = 2.564%

The property was sold on 27 Feb, The mid-month convention applies here which states that all fixed asset acquisitions are assumed to have been purchased in the middle of the month for depreciation purposes.

The depreciation will be calculated as,

= ($200,000 x 2.564% x 1.5/12)

Simmons' maximum depreciation in the 10th year = $641