A taxpayer purchased a machine for business use on November 15, Year 1, for $100,000. This was the only personal property placed in service during the year. The taxpayer uses the MACRS system. Which convention must be used to calculate depreciation for Year 1?

Answer options:

Half-year convention

Mid-quarter convention

Mid-month convention

Full-month convention

How to approach this question

Check the 40% rule. If >40% of tangible personal property is placed in service in Q4, use Mid-Quarter.

Full Answer

B.Mid-quarter convention✓ Correct

The mid-quarter convention applies if more than 40% of the aggregate basis of personal property placed in service during the year is placed in service during the last three months (Quarter 4) of the tax year. Here, 100% was placed in service in Nov (Q4).

Common mistakes

Defaulting to Half-Year convention without checking the 40% test.

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