Chapter 10: Basis Rules, Depreciation, and Asset Categorization

01.Core Concepts

Twyla purchases an office building that she plans to rent out. The building cost $1.4 million, and $200,000 of the purchase price is attributed to the land. Since the property is used for commercial rental purposes, Twyla can depreciate the building (at a value of $1.2 million, which equals the purchase price of $1.4 million less the land value of $200,000) on a straight-line basis over a 39-year period. Therefore, Twyla’s annual depreciation deduction will be $30,769.23.