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Western Bank & Trust: Depreciation

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.

Explain the tax advantage of allocating too much to the building and too little to the land. Was Western's allocation ethical? If so, state why. If not, state why not. Identify who was harmed.

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Solution Preview

This constitutes a fraudulent act. The bank knows that the allocation was incorrect. They allocated a high amount to the building because you cannot depreciate land. By allocating 90% to the ...

Solution Summary

This solution discusses the depreciation income tax issue based on the facts given. The ethics and parties harmed are also discussed.