Fairfield Properties owns real property that is MACRS depreciated with n = 39 years. They paid $3.4 million for an apartment complex and hope to sell it after 10 years of ownership for 50% more than the book value at that time. Compare the expected selling price with the amount that Fairfield paid for the property.
What will be an ideal response?
Use rates for real property with n = 39 years
D1 = 0.01391(3,400,000) = $47,294
D2 to D10 = 0.02564(3,400,000) = $87,176
Total depreciation for 10 years = 47,294 + 9(87,176) = $831,878
BV10 = 3,400,000 – 831,878
= $2,568,122
Anticipated selling price is 1.5(BV10) = $3,852,183
Fairfield hopes to sell it for $452,183 more than they paid for it.
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