Della purchased a warehouse on Feb. 25, 2017 for $350,000. $45,000 of the price was for land. What is her cost recovery deduction for 2017?
How do I figure this??
you can apply Cost Recovery to the building only. https://goodcalculators.com/macrs-depreciation-calculator/
You need a tax accountant.
To figure out Della's cost recovery deduction for 2017, you will need to determine the value of the portion of the warehouse that can be depreciated. The cost recovery deduction refers to the depreciation expense that can be deducted each year for tax purposes.
To calculate the cost recovery deduction, you will need to know the applicable depreciation method, recovery period, and the value of the depreciable portion of the warehouse.
In this case, since $45,000 of the purchase price was allocated to land, it cannot be depreciated because land does not lose value over time.
So, to calculate the depreciable portion of the warehouse, subtract the value of the land from the total purchase price: $350,000 - $45,000 = $305,000.
Next, you will need to determine the appropriate depreciation method and recovery period. The Internal Revenue Service (IRS) provides guidelines for different types of assets.
For commercial real estate properties such as warehouses, the general depreciation method is the Modified Accelerated Cost Recovery System (MACRS). The recovery period for warehouses is typically 39 years.
Using the MACRS depreciation table, you can find the depreciation rate for the warehouse based on its recovery period. In this case, the depreciation rate for a warehouse over 39 years is 2.5641% (calculated using the 200% declining balance method).
Finally, to calculate the cost recovery deduction for 2017, multiply the depreciable portion of the warehouse by the depreciation rate:
$305,000 x 2.5641% = $7,823.45
Therefore, Della's cost recovery deduction for 2017 would be $7,823.45.