Reference no: EM133163542

Question - Modified Accelerated Cost Recovery System - On October 8, 2020, Holly purchased a residential apartment building. The cost basis assigned to the building is $263,300. Holly also owns another residential apartment building that she purchased on May 15, 2020, with a cost basis of $660,000.

a. Calculate Holly's total depreciation deduction for the apartments for 2020 using MACRS.

MACRS allows taxpayers who invest in capital assets to write off an asset's cost over a period designated in the tax law and to use an accelerated method for depreciation of assets other than real estate.

The minimum number of years over which the cost of an asset may be deducted (the recovery period) depends on the type of the property and the year in which the property was acquired.

The calculation of depreciation expense for tax purposes involves certain conventions and limitations.

Under MACRS, taxpayers calculate the depreciation of an asset using a table which contains a percentage rate for each year of the property's recovery period. The yearly rate is applied to the cost of the asset. The cost of the property to which the rate is applied is not reduced for prior years' depreciation.

Note: There are different tables for residential realty (e.g., an apartment building) and non-residential realty.

b. Calculate Holly's total depreciation deduction for the apartments for 2021 using MACRS.