CPA Exam — REG (Regulation)Federal Taxation of Property TransactionsMedium
A client, Mr. White, purchased a new light-duty truck for his landscaping business for $45,000 on December 1, 2023. This was the only asset placed in service during 2023. The truck is 5-year MACRS property. What is the allowable depreciation deduction for 2023? (Use MACRS depreciation tables. For 5-year property, the mid-quarter convention percentages for Q4 are: Year 1: 5.00%, Year 2: 24.00%, Year 3: 17.28%, Year 4: 10.37%, Year 5: 10.37%, Year 6: 5.19%.) Assume no Section 179 or bonus depreciation.
- A$2,250
- B$4,500
- C$2,000
- D$9,000
Show answer & explanationAnswer & explanation
Correct answer: A. $2,250
Since the only asset was placed in service in December (the fourth quarter), the mid-quarter convention applies because 100% of the depreciable basis was placed in service in Q4 (which is >40%). For 5-year property placed in service in the 4th quarter, the Year 1 MACRS percentage is 5.00%. Therefore, $45,000 * 0.0500 = $2,250.
Why the other options are wrong
- B. This is an arbitrary percentage (10%) applied to the basis.
- C. This is an arbitrary value and does not reflect MACRS calculations.
- D. This would be the depreciation if the half-year convention applied ($45,000 * 20.00% = $9,000), which it does not.
MACRS Mid-Quarter Convention (Single Asset)
If a single depreciable personal property asset is placed in service in the last quarter of the tax year, the mid-quarter convention automatically applies, as 100% of the property's basis was placed in service in Q4.
- Triggered if >40% of total personal property basis is in service in Q4.
- If only one asset, and it's in Q4, mid-quarter applies.
- Depreciation calculated from the mid-point of the quarter.
Memory trick: Q4's 40% rule: If it's all in the last, mid-quarter's fast!