Manufacturers acquiring more than 40 percent of their annual capital equipment expenditures in the last three months of the year must apply the Mid-Quarter Convention
to their depreciation claim for ALL equipment purchases made that year.
However, the mid-quarter convention
(instead of the mid-year convention) applies to depreciable property placed in service during the taxable year if the aggregate bases of property placed in service during the last three months of the taxable year exceeds 40% of the aggregate bases of property placed in service (or disposed of) during the taxable year ("the 40% test").
The mid-quarter convention
applies to property placed in service during the taxable year if the aggregate bases of property placed in service by the taxpayer during the last three months of the taxable year exceeds 40% of the aggregate bases of property placed in service during the taxable year.
168(d)(4)(c) mid-quarter convention
and regular depreciation would differ.
If the taxpayer chooses the assets to which it will allocate the [section] 179 amount, the taxpayer also can affect whether the mid-quarter convention
or the half-year convention will apply to assets.
By using Section 179 on those assets that ate acquired in the last quarter, you may be able to prevent that mid-quarter convention
from applying, because it may reduce the basis of those assets below the 40% threshold.
If more than 40 percent of your purchases are in the fourth quarter, your depreciation deduction will be calculated using the mid-quarter convention
Features include: an pull-down menu system; support of all depreciation methods including ACRS and MACRS and those for pre-ACRS assets, book depreciation, or amortizable assets; unlimited number of companies to maintain depreciation schedules for; unlimited number of assets for a company; up to five depreciation calculations possible for each asset entered; user-determined number of methods and descriptions for each method when creating a depreciation file; calculation of monthly, annual, next-year's, prorated, short-year and projected depreciation; automatic application of listed property limitations and the provisions of the mid-quarter convention
where appropriate; a wide variety of reports; and more.
But if more than 40 percent of your total purchases are made in the fourth quarter, you may have to use a mid-quarter convention
to compute the depreciation, which could significantly reduce your first-year deduction,'' explains DeMarco.
31, 2003 to elect not to apply the mid-quarter convention
to property placed in service in the tax year that included 2001, if the third or fourth quarter of the taxpayer's tax year included Sept.
Also, if the mid-quarter convention
is an issue, taxpayers can select assets acquired in the last quarter of the tax year.
In two recent notices, the IRS announced its intention to issue regulations permitting certain taxpayers to elect not to use mid-quarter convention