In Year 1, a taxpayer placed the following 5-year MACRS assets in service: Asset A (Cost $100,000) on February 1; Asset B (Cost $200,000) on November 1. No other assets were placed in service. Which depreciation convention must be used?

Answer options:

Half-year convention for both assets.

Mid-quarter convention for both assets.

Half-year for Asset A and Mid-quarter for Asset B.

Mid-month convention for both assets.

How to approach this question

1. Sum total personal property basis ($300k). 2. Sum Q4 basis ($200k). 3. Is Q4 > 40% of Total? (200/300 = 66%). Yes -> Mid-Quarter applies to ALL assets.

Full Answer

B.Mid-quarter convention for both assets.✓ Correct

Under IRC §168(d), if more than 40% of the aggregate basis of tangible personal property placed in service during the year is placed in service during the fourth quarter, the mid-quarter convention applies to all such property placed in service during the year.

Common mistakes

Applying the convention only to the Q4 asset, or forgetting the 40% test entirely.

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