Real Estate Math
A property was purchased for $185,000. It is being depreciated for income tax purposes over 27.5 years (residential). What is the annual depreciation deduction (land value is $35,000)?
A$5,455✓ Correct
B$6,727
C$5,455
D$4,909
Explanation
Depreciable basis = Purchase Price – Land Value = $185,000 – $35,000 = $150,000. Annual depreciation = $150,000 / 27.5 years = $5,454.55 ≈ $5,455. Land is not depreciable. Residential rental property is depreciated over 27.5 years; commercial property over 39 years under IRS rules.
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