A business, Tech Solutions Inc., acquired a piece of equipment for $200,000 on October 15, 2023. The equipment is 7-year MACRS property. Tech Solutions Inc. made no other asset purchases in 2023. What MACRS depreciation convention must be used for this equipment for 2023?
- AHalf-year convention
- BMid-quarter convention
- CMid-month convention
- DFull-year convention
Show answer & explanationAnswer & explanation
Correct answer: B. Mid-quarter convention
The mid-quarter convention applies if the total depreciable basis of all MACRS personal property placed in service during the last three months of the tax year exceeds 40% of the total depreciable basis of all MACRS personal property placed in service during the entire tax year. Since this was the only asset purchased, and it was placed in service in October (the fourth quarter), 100% of the property was placed in service in the last quarter, exceeding the 40% threshold. Therefore, the mid-quarter convention must be used.
Why the other options are wrong
- A. The half-year convention is the default, but it is overridden if the mid-quarter convention test is met.
- C. The mid-month convention applies to real property, not personal property.
- D. The full-year convention is not a standard MACRS convention.
MACRS Mid-Quarter Convention
A depreciation convention under MACRS that applies if more than 40% of the total depreciable basis of all personal property placed in service during the tax year is placed in service during the last three months of the tax year.
- Overrides the half-year convention.
- Applies to all personal property placed in service during that tax year.
- Depreciation is calculated as if property was placed in service at the midpoint of the quarter.
- Designed to prevent taxpayers from accelerating depreciation by purchasing assets late in the year.
Memory trick: Mid-Quarter is for 'Q'uarter-end 'Q'uantity.