The Donut Stop purchased land and a building for $ 2 million. To maximize the company’s tax deduction for depreciation, management allocated only 10% of the purchase price to land and 90% of the purchase price to the building. A more reasonable allocation would have been 20% to the land and 80% to the building.

Required:
1. Explain the tax benefits of allocating less to the land and more to the building.
2. Is the allocation made by Donut Stop’s management ethical? Why or why not? Who, if anyone, was harmed?