On May 5 2017 Christy purchased and placed in service a hote

On May 5, 2017, Christy purchased and placed in service a hotel. The hotel cost $10.8 million, and the land cost $1.2 million ($12 million in total). Calculate Christy\'s cost recovery deductions for 2017 and for 2027.

Solution

Here, MACRS method is being applied for cost recovery deducitons.

Land is not depreciable. Only the value of building is eligible for depreciation / cost recovery deductions.

Therefore, the amount available for cost recovery deduction = $10.8 million.

Since, a period of 10 years (2017-2027) is given, a 10 years cost recovery schedule is chosen in MACRS.

Cost recovery deduction for 2017 = 10.8 * 10%

= $1.08 Million.

Cost recovery deduction for 2027 = 10.8 * 3.28%

= $0.3542 Million. (or) $354.2 Thousands.