Which describes simple straight-line depreciation for a residential property under MACRS?

• A. Determine asset class (e.g., 27.5-year for residential), annual depreciation expense = asset basis / depreciation life; adjust for salvage; incorporate into tax cash flow.
• B. Depreciation is always on a straight-line basis over 10 years.
• C. Residential property is not depreciable.
• D. Depreciation life is 5 years.

Answer: (A)

Under MACRS, residential rental property is depreciated on a straight-line basis over 27.5 years. That means you take the asset’s basis and divide it by 27.5 to get the annual depreciation deduction, which reduces taxable income and flows through to tax cash flow in the model. In practice, the depreciation amount is applied each year in a consistent manner, with salvage value not typically used in calculating the depreciation deduction itself. The other statements don’t fit this framework: a 10-year life is incorrect for residential property, residential property is depreciable, and a 5-year life is also incorrect.