Mid-Quarter Depreciation Convention
Course: Income Tax Planning
Student Question:
Hello, see the question below. I got this question right, but the explanation of why I got it right is weird. I thought mid-month depreciation was only used for real property, and this is saying it is used for equipment. Then, the explanation of the correct answer talks about mid-quarter.
Wurst Foods, Inc. distributes specialty German food. The company operates on a calendar year basis and purchases $800,000 in equipment in the current year as follows. Assume the property is depreciable but does not qualify for immediate expensing.
January 1st $400,000
December 1st $400,000
Which of the following, if any, accurately describes the calculation of current-year MACRS depreciation arising from these purchases?
Instructor Response:
You are correct in that only depreciable real property is subject to the mid-month convention. However, the assets purchased in this question are personal (not real) property (equipment) used in a trade or business. The mid-quarter convention applies because Wurst purchased more than 40% of total asset (equipment) purchases in the final quarter of the year. Hence, the January acquisition is entitled to one-half quarter’s depreciation in the acquisition quarter plus another three full quarters of depreciation for the period April through December. The property acquired in December is entitled to only one-half quarter’s depreciation.
