NRW Company, a calendar year taxpayer, purchased a residential apartment complex for $5.8 million and allocated $1 million cost to the land and $4.8 million cost to the building. NRW placed the realty in service on August 2, 2019.a. Compute NRW's MACRS depreciation with respect to the realty for 2019 and 2020. b. Compute NRW's adjusted basis in the land and building on December 31, 2020. c. How would your answer to a. change if the building was a manufacturing plant instead of an apartment complex?
What will be an ideal response?
a. MACRS depreciation for 2019 is $65,472 ($4,800,000 × 0.01364), and MACRS depreciation for 2020 is $174,528 ($4,800,000 × 0.03636).
b. NRW's adjusted basis in the land is $1,000,000, and its adjusted basis in the building is $4,560,000 ($4,800,000 - $65,472 - $174,528).
c. The building's recovery period increases from 27.5 years to 39 years. MACRS depreciation for 2019 is $46,224 ($4,800,000 × 0.00963), and MACRS depreciation for 2020 is $123,072 ($4,800,000 × 0.02564).
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