Dennison Property Company purchases a new office space for lease to small businesses for $2,400,000, including a land value of $400,000. The property is placed in service on March 15, 1999. Using MACRS, what is the depreciation on this property at the end of its first year? (Points: 5)
$40,660
$43,656
$50,260
$57,850
To find the depreciation on the property at the end of its first year using MACRS, we need to follow these steps:
1. Determine the MACRS depreciation method: Since the property is an office space, we'll use the General Depreciation System (GDS).
2. Determine the depreciation recovery period: According to the MACRS GDS tables, office spaces have a recovery period of 39 years.
3. Determine the depreciation rate for the first year: The MACRS GDS table provides depreciation rates for each year of the recovery period. The rate for the first year is 2.564%, as indicated in the table.
4. Calculate the depreciable basis: The depreciable basis is the cost of the property minus the value of the land. In this case, the depreciable basis is $2,400,000 - $400,000 = $2,000,000.
5. Calculate the depreciation expense: Multiply the depreciable basis by the depreciation rate for the first year.
$2,000,000 * 2.564% = $51,280
Therefore, the depreciation on this property at the end of its first year is $51,280.
None of the answer choices provided matches exactly with this result, but the closest option is $50,260.