Question

Mona wants to compare Sch E results when the special/bonus depreciation allowance is elected versus when it is not. Therefore, prepare returns for both scenarios. She does want to take advantage of the de minimis safe harbor election, if any of the new property applies. Mona rented a single family home since Sept 3, 2001. At that time the adjusted basis was $154,000 and land was valued at $11,600. She received $1,020 per month in rent for 12 months during the current tax year. In June of 2017, the backyard fence fell into despair and she replaced it for $8,399 on 6/27/2017. She replaced the stove for $492 on 9/19/2017. Both of the original assets had been fully depreciated. Regarding the new assets, electing to use the special depreciation allowance may benefit her this year, but she wants to consider the long term benefit of how this would impact the profit or loss from the rental in subsequent years. Here are the other expenses: Yard maintenance: 480 , Insurance: $2,520, Tax prep fees: $500, Mortgage Interest: $3,572, Repairs: $650, Real Estate Tax: $1,938, Exterminator: $88, Rental License: $55. Question 1: If Mona elects to use special depreciation for the new fence, what is the total depreciation deduction? If mona elects to opt out of special depreciation for the new fence, what is the total depreciation deduction?

Answer 1

Steps for calculating Special depreciation:

• Determine the basis of the property
• Determine the % of business use
•    Multiply the basis by the % of business use
• Subtract amount deducted under section 179
• Multiply the result by the 50% for special depreciation allowance
• Multiply the result by depreciation rate (A)

Basis:  Expenses + Cost of the asset

8,399+480+2,520+650

12,049

% of the business use:

If the fence cost less than $2500 you can deduct it in one year. If it cost more than $2500 you must depreciate it over 15 years as a land improvement. However, you can use the 50% bonus depreciation rule.

Multiplying both:

12049*50%

6024.5

Section 179 amount is none in the case

Instead of depreciation rate as it is not given in the question, We'll use useful years:

   6024.5/15

   401.63