* Assets subject to the mid-quarter or midmonth convention
must be grouped in a GAA with assets placed in service in the same respective quarter or month;
Under the modified accelerated cost recovery system (MACRS), depreciable nonresidential real property placed into service after May 12, 1993, is generally subject to a 39year cost recovery period, using the straight-line method and midmonth convention [IRC section 168(c)].
(Under MACRS, a residential building will typically be depreciated over 27.5 years using the straight-line method and midmonth convention.) Sometimes, tax professionals might question when a structure is a building.
* Commercial Office: $19,979 [Commercial real estate will be treated as 39-year property using MACRS, straight-line method, and midmonth convention. Depreciation: ($1,100,000 - 39) x (8.5 - 12) = $19,979],
If either the relinquished or replacement property is property for which the applicable convention (determined under section 168(d)) is the midmonth convention, the exchanged basis must be depreciated using the midmonth convention.
Therefore, when the building is acquired and placed in service in 2004, its basis is depreciated over the remaining 21.5-year recovery period using the straight-line method and the midmonth convention beginning in July 2004.
She depreciates the room under IRC section 168 as nonresidential real property using the optional depreciation table that corresponds with the general depreciation system, the straight-line method of depreciation, a 39-year recovery period, and the midmonth convention
Exhibit 3: B's business expenses in Example 1 Advertising $ 7,000 Professional fees 1,000 Continuing education 2,000 Dues and subscriptions 800 Supplies 1,500 Postage 400 Total $12,700 Exhibit 4: B's Home office expenses in Example 1 Mortgage interest $18,000 Property taxes 2,900 Homeowners'insurance 1,400 Utilities 600 Repairs 2,000 Cleaning 1,200 Total $26,100 To calculate depreciation, B uses the depreciation table that corresponds with the general depreciation system--nonresidential real property, midmonth convention, straight-line over 39 years.
Exhibit 6: W's home office expenses in Example 3 Mortgage interest $16,000 Property taxes 1,900 Homeowners' insurance 900 Utilities 1,000 Repairs 2,000 Cleaning 1,600 Total $23,400 To calculate depreciation, W uses the depreciation table that corresponds with the general depreciation system--nonresidential real property, midmonth convention, straight-line over 39 years.
But for the extension of these provisions, the property would be treated as nonresidential real property and be depreciable over 39 years using the midmonth convention
(The annual depreciation rate is different in the first and last year the property is placed in service because of the application of the midmonth convention
.) In 2011, the property failed to meet the 80%-gross-receipts test and, thus, no longer qualified as residential rental property.