Choice "a" is correct. Only the building is depreciable, so the depreciable
portion is $264,000 less $30,000 land, for a net of $234,000. The MACRS rules
provide a 39-year life, straight-line depreciation, and a "mid-month"
acquisition convention that treats the property as acquired in the middle of the
month, regardless of the actual date of acquisition. Therefore, the August 1,
Year 1, service date provides a half-month's depreciation for August, plus a
full month for September through December, for a total of 4.5 months for Year 1.
($234,000/39 years) × (4.5/12) = $2,250.
Choice "c" is incorrect. The recovery period for nonresidential real property
is 39 years and the mid-month convention is used. The building is treated as if
acquired in the middle of the month, regardless of the actual date of
acquisition. Depreciation may only be taken for the months after the building
was placed in service.
Choice "d" is incorrect. The mid-month convention is used for real property.
The building is treated as if acquired in the middle of the month, regardless of
the actual date of acquisition. Depreciation may only be taken for the months
after the building was placed in service.
