Hotels are considered non - residential real property and are depreciated over a 39 -year life. Land is not depreciated. Investors in the RCS group purchased a hotel resort in April, the group paid $20 Million for the hotel resort and $5Million for the grounds surrounding the resort. The group sold the resort 5 years later in August.

MACRS GDS method- d_t = B x r_t d_t- Depreciation deduction in year t

B- Cost basis being depreciated

r_{t -} Appropriate MACRS percentage rate

Book Value = Cost basis - Depreciation charges made to date

BV_t = Cost Basis -

Monthly Recovery percentage rates for non residential real property

Recovery Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
1	2.461	2.247	2.033	1.819	1.605	1.391	1.177	0.963	0.749	0.535	0.321	0.107
2-39	2.564	2.564	2.564	2.564	2.564	2.564	2.564	2.564	2.564	2.564	2.564	2.564
40	0.107	0.321	0.535	0.749	0.963	1.177	1.391	1.605	1.819	2.033	2.247	2.461

Note: a percentage rate of 2.461% = 0.02461

1. Use the MACRS GDS method to calculate the depreciation deductions for years

1 through 6 and fill out the Depreciation deduction table. Using d_t = B x r_t

Note: The hotel resort was purchased in April , so the monthly percentage rate to be used for the first year is that for April. Similarly, the hotel resort was sold in August, so in calculating year 6, use the percentage rate stated for Aug of the 40 year.

Depreciation Deduction Table (6marks)

Year 1 ( obtained in April)	dt1 = 20,000,000 x =
Year 2	dt2 = x =
Year 3	dt3 = x =
Year 4	dt4 = x =
Year 5	dt5 = x =
Year 6	dt6 = x =