I am on chapter 12 of the book and one of the exercises I must be missing a critical piece of information because I can't figure out why the answer is what it is. "What is the annual depreciation for a residential property worth 385,000?" No other information is given, if residential is deprecated over 27.5 years at that cost, you get 14,000. The book answer is 12,727.27. If the property was worth 350,000 that makes sense, where did 35,000 go from the original price given of 385,000?
Am I missing something that I did not account for? There were no other variables given to consider in the question.
Investor · Scottsdale, AZ · Member since 2015 · 8 posts · 0 votes
3y
Hi Saqib-
I believe the difference between your calculation of 14k and the book's calculation of 12k has to do with Land. Land cannot be depreciated.
Therefore, you must subtract the land value, my guess in this case, $35,000 from the total property value, $385,000, which leaves you with the improved real estate (house) value of $350,000. Then you divide the improved real estate value $350,000 by 27.5 to get $12,727.27 annual depreciation.
Thanks for the reply, that makes sense and I understand the concept clearly now. I'm just still confused how they determined the land was worth 35,000?Nothing was stated in the question at all about the land. Feels like this is an error or a piece of information was missing because where is the valuation of 35,000 in land coming from and how was it calculated.