CPA Exam — REG (Regulation)Federal Taxation of Property TransactionsHard
A business, 'Green Thumb Landscaping', purchased a new light-duty truck for $40,000 on November 15, 2023. This was the only asset purchased during the year. The truck is 5-year MACRS property. What is the MACRS depreciation deduction for 2023?
- A$10,000
- B$2,000
- C$4,000
- D$8,000
Show answer & explanationAnswer & explanation
Correct answer: B. $2,000
Since more than 40% of the total depreciable basis of property (100% in this case) was placed in service during the last quarter of the tax year (Q4), the mid-quarter convention applies. For 5-year MACRS property placed in service in Q4, the first-year depreciation rate is 5.00%. Therefore, the depreciation deduction is $40,000 * 0.0500 = $2,000.
Why the other options are wrong
- A. This option might be a miscalculation using an incorrect rate.
- C. This option incorrectly applies the half-year convention rate for 5-year property (20% * 0.5 = 10% * $40k = $4k, still wrong table). The correct half-year rate for 5-year property is 20%.
- D. This option incorrectly applies the full first-year rate for a different convention or asset class.
MACRS Mid-Quarter Convention
The mid-quarter convention applies if the total depreciable basis of MACRS property placed in service during the last three months of the tax year exceeds 40% of the total depreciable basis of all MACRS property placed in service during the entire year.
- Triggered by significant year-end purchases.
- Treats property placed in service at the midpoint of the quarter.
- Requires separate depreciation tables for each quarter.
Memory trick: Conventions: 'Half is Default, Quarter if Late-Heavy.'