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NEW QUESTION: 1
A rental property was purchased for $625,000 with an estimated land value of $81,000. The purchaser had a marginal tax rate on ordinary income of 34% and faced a capital gains rate of 20%. Assuming the property is depreciated over a 27.5 year life, the after-tax cash flow resulting from the depreciation expense would be closest to:
The depreciable basis is $625,000 - $81,000 = $544,000. The annual depreciation is
$ 544,000/27.5 = $19,782. The tax savings from this non-cash expense is .34 x $19,782 = $6,726.