Randy owns and rents a residential duplex that he purchased 17 years ago in the month of May. The purchase price was $250,000. During August of the current year, Randy sold the duplex. What is the amount of depreciation that can be deducted in the current year (rounded to the nearest dollar)?
a) $6,410
b) $5,681
c) $9,090
d) $6,439
e) $4,006

Answers

Answer 1

Answer:

$5,681

Explanation:

As this is a residential property the Modified Accelerated Cost Recovery System (MACRS) depreciation rate is applicable.

Also as it was sold during the month, the mid month convention is also in effect which states that when an asset is sold during the month, only 15 days of that month are considered for depreciation assuming a 30 day month.

The straight line rate for MACRS after the first year for this residential property is 3.636% per annum.

The asset didn't last the entire year so this needs to be accounted for.

Out of 12 months it lasted 7 months till July and 15 days in August which means it lasted 7.5/12 of the year.

Depreciation for the year is, therefore,

= 250,000 * 3.636% * 7.5/12

= $5,681


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