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On April 1st, Leo Smith paid $310,000 for a residential rental property. This purchase price represents $250,000 for the building and $60,000 for the land. Five years later, on November 1st, he sold the property for $400,000. Compute the MACRS depreciation for each of the five calendar years during which he had the property.

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Answer:

Total cost of asset is $250000 + $60000 = $310000.

MACRS depreciation for the five calendar year during which he had property can be calculated directly from the IRS table (part of it) given below;

Year | 1 | 2 | 3 | 4 | 5|

Dep. rate. |20.0|32.0|19.2|11.52| 11.52|

Using the table above MACRS depreciation can be showed as calculated below for the five calendar year:

1st year

20% × $310000 = $62000

2nd year

32% × $310000 = $99200

3rd year

19.20% × $310000 = $59250

4th year

11.52% × 310000 = $35712

5th year

11.52% × 310000 = $35712.

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