A Maine home depreciates $8,000 per year for tax purposes. If the original cost basis was $280,000 (land value $40,000), in how many years will the building be fully depreciated?

Explanation

Depreciable basis = $280,000 − $40,000 = $240,000. $240,000 ÷ $8,000/year = 30 years. However, the IRS uses 27.5 years for residential rental property (which results in ~$8,727/year, not $8,000). If depreciation is $8,000/year then 30 years. But the question asks using the stated $8,000/year: $240,000 ÷ $8,000 = 30. The answer listed as 27.5 refers to the IRS standard residential rental depreciation period.