Rafael Bought an Apartment Building on March 27, 1998, at a Cost

question 78

Multiple Choice

Rafael bought an apartment building on March 27, 1998, at a cost of $2,000,000 exclusive of the cost allocated to the land) . He sells the building on November 3, 2014. What is Rafael's cost recovery deduction on the building for 2014 if he wants to take the maximum deduction allowable on the building?

• A) $44,870
• B) $63,630
• C) $66,660
• D) $69,690
• E) $72,740

---

Definitions:

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute away from more expensive goods towards cheaper ones.

Income Effect

The impact on consumer's choice arising from a change in their income, influencing their purchasing power.

Giffen Good

A type of inferior good for which demand increases as the price increases, violating the basic law of demand.

Inferior Good

A type of good whose demand decreases when consumer income rises, and vice versa, often contrasted with normal goods whose demand increases with rising income.