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25 April, 12:04

Doug purchased a new factory building on January 15, 1990, for $400,000. On March 1, 2017, the building was sold. Determine the cost recovery deduction for the year of the sale; Doug did not use the MACRS straight-line method.

a. $12,696

b. $0

c. $1,587

d. $2,645

e. None of these choices are correct.

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  1. 25 April, 13:13
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    D) $2,645

    Explanation:

    Non residential real estate purchased before May 3, 1993 has to be amortized during a 31.5 year life. Real estate purchased and put in service after that date can be amortized in 39 years.

    to calculate the cost recovery deduction we can use the following equation:

    cost recovery reduction = (1 / 31.5) x $400,000 x (2.5 / 12) = 0.03174 x $400,000 x 0.2083 = $2,644.58 ≈ $2,645
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