Western bank amp trust purchased land and a building for, Ask an Expert

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Western Bank & Trust purchased land and a building for the lump sum of $3 million dollars.

To get the maximum tax deduction, Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation would have been 70% to the building and 30% to the land.

The average useful life for commercial buildings is 25 years.

What is the depreciation expense for the 90%/10% allocation?

What is the depreciation expense for the 70%/30% allocation?

Why would Western view this action as a tax advantage?

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