Question

In August 2016, Richard purchased and placed in service an office building costing $753,000, including $134,000 for the land. The amount of depreciation Richard may claim in 2016 is
I have been trying to figure out the answer but have not been successful. I have looked at different depreciation charts and tempted to figure it out per year. Could you please assist? I will be forever grateful. If possible can you tell me how figure out the answer?

Answer 1

There is no depreciation schedule provided along with your question.

Assuming that the question makes us of the Modified Accelerated Cost Recovery System (MACRS), which provides that the useful life for non-residential real property is 39 years. Depreciation is straight line using the mid-month convention.

The mid-month convention means that the month of acquisition is calculated as half month irrespective of the date of acquisition.

Given that Richard purchased and placed in service an office building costing $753,000, including $134,000 for the land in August 2016, the depreciable part is only the building, hence the depreciable cost is given by:

$753,000 - $134,000 = $619,000

The depreciation charge for each year of the estimated life of the building is given by:

$619,000 / 39 = $15,871.79

The depreciable period in 2016 is 4.5 months (i.e. September, October, November and December with August treated as half month).

Therefore, the amount of depreciation Richard may claim in 2016 is given by:

(4.5 / 12) x $15,871.79 = $5,951.92.