A business purchased ,000 of office furniture (7-year property) on Feb 1 and ,000 of machinery (5-year property) on Dec 1. No other assets were purchased. Which MACRS convention must be used?

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 personal property is bought in Q4, use Mid-Quarter for EVERYTHING. Otherwise, Half-Year.

Full Answer

B.Mid-Quarter Convention✓ Correct

Since more than 40% of the total basis of personal property was placed in service during the last quarter of the year (,000 / ,000 = 80%), the mid-quarter convention must be used for all assets.

Common mistakes

Assuming Half-Year convention is the default without checking the Q4 test.

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