To calculate Della's cost recovery deduction for 2015, we need to determine the depreciable value of the warehouse and then apply the appropriate depreciation rate. The depreciable value of the warehouse is the total purchase price minus the portion allocated to the land.
Step 1: Calculate the depreciable value of the warehouse:
Depreciable value = Total purchase price - Land portion
= $350,000 - $45,000
= $305,000
Step 2: Determine the depreciation rate:
The IRS provides a Modified Accelerated Cost Recovery System (MACRS) to calculate depreciation for commercial properties. For a nonresidential real property like a warehouse, the recovery period is 39 years.
Step 3: Apply the depreciation rate to calculate the cost recovery deduction:
Depreciation expense = Depreciable value / Recovery period
= $305,000 / 39
To round the result to the nearest dollar, we need to determine whether the decimal portion is closer to zero or one. If the decimal portion is greater than or equal to 0.5, we round up; otherwise, we round down.
In this case, the decimal portion would be:
Decimal portion = (Depreciation expense - Rounded down depreciation expense)
= (Depreciable value / Recovery period) - Rounddown(Depreciable value / Recovery period)
Now, let's perform the calculations to get the final result:
Depreciation expense = $305,000 / 39
= $7,820.51
Rounded down depreciation expense = Rounddown($305,000 / 39)
= $7,820
Decimal portion = $7,820.51 - $7,820
= $0.51
Since the decimal portion is less than 0.5, we round down the depreciation expense.
Therefore, Della's cost recovery deduction for 2015, rounded to the nearest dollar, is $7,820.