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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