You purchased a residence for 550000 The land is worth 29 of

You purchased a residence for $550,000. The land is worth 29% of the purchase price. You immediately built an addition to the house for $22,000. The holding period is 5 years. The selling price is $730,000. What is the accumulated depreciation of the camp over the holding period?

The answer is $74,841. Please show how to get the answer. -Straight Line

Solution

Total purchase price = $550,000

Value of the land =29% = $159,500

Value of the building = $390,500.

Additions to the building =$22,000

Total value of the building = $390,500 + $22,000 = $412,500

Under MACRS, residential property is to be depreciated over a period of 27.5 years.

Annual rate of depreciation = 100 / 27.5 = 3.63%

Annual depreciation on the given property = 3.63% of 412,500 = $14,973,.75

Depreciation for 5 years =$14,973.75 * 5 = $74,868.75 (rounding off difference)