On November 2, 2020, Ellie purchased and placed in service a building that cost $5,600,000. An appraisal determined that 15% of the total cost was attributed to the value of the land. The bottom floor of the building is leased annually to a retail business for $80,000. The other floors of the building are rental apartments with an annual rent of $350,000.A. How is the property classified for MACRS? B. What is the life of the asset for MACRS?C. Ellie's cost recovery for 2018 is.

Ellie

A. The property is classified for 27.5-year MACRS since more than 80% of the gross rental income emanates from residential dwellings.

B. The life of the asset for this type of MACRS is 27.5 years.

C. Ellie's cost recovery for 2020/2018 is $28,848.

Explanation:

a) Data and Calculations:

Cost of building and land = $5,600,000

Appraised cost of land = $840,000 ($5,600,000 * 15%)

Appraised cost of building = $4,760,000 ( ($5,600,000 * 85%)

Rent from the bottom floor leased to a retail business = $80,000

Rent from the other floors as rental apartments = $350,000

Total value of rental income = $430,000

Retail business % of rental income = 19%

Residential apartments % of rental income = 81%

Cost recovery = $173,091 ($4,760,000/27.5) per annum

For 2 months, the cost recovery = $28,848 ($173,091 * 2/12)

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