On August 2, 2019, Wendy purchased a new office building for $3,800,000. On October 1, 2019, she began to rent out office space in the building. On July 15, 2023, Wendy sold the office building.

a. What MACRS convention applies to the new office building?b. What is the life of the asset for MACRS?

Explanation:

a)

Mid-month MACRS convention is applicable here because real property is placed in service in the middle of the month in which acquired.

b)

The life of the asset following MACRS is 39 years.

c)

Cost recovery deduction:    

The building is listed as the non-residential real property holding 39 years lifetime

Cost recovery deduction for 2015:

= $3,800,000 x 0.535%

= $20,330

Cost recovery deduction for 2019:

= $3,800,000 x 2.564% x (6.5/12 months)

= $52,776