Additionally, for purposes of determining whether the
midquarter convention applies to other MACRS property placed in service during the year, the change-in-use property is not taken into account.
If Joe elects to deduct the $20,000 expensing election all for fourth-quarter purchases, he is considered to have bought only $2,500 in the fourth quarter and the midquarter convention will not apply ($2,500 / $49,500 = 5.05%) [Treasury Regulations section 1.168(d)1(b)(4) and PLR 9126014].
Where the midquarter convention applies, taxpayers are allowed considerably less first-year depreciation for assets purchased in the fourth quarter of the tax year.
In addition, if over 40% of the horses acquired during any year are purchased in the last quarter, the
midquarter convention is required and rates different from those in exhibit 5 must be used.
168(i)(7) transactions, the parties to the transaction need to give special consideration to the midquarter convention, related depreciation calculations, and bonus depreciation.
In certain circumstances, however, the midquarter convention is required.
Assets subject to the
midquarter convention may be grouped only into an account with other assets placed in service in the same quarter, and passenger vehicles subject to the depreciation caps must be grouped into a separate general asset account.
Depreciation after the end of the recovery period: Although computers have a five-year MACRS life, because either the half-year or
midquarter convention is used in the year of purchase and in the year of disposition, the computer is actually depreciated over six years.
However, if the aggregate basis of property placed in service during the last three months of the tax year exceeds 40% of the basis placed in service during the entire year, the less-favorable
midquarter convention applies.
Software highlights: Handles "shoe box" data; maintains complete audit trail; includes tax planner, fixed-asset management; depreciation schedule supports MACRS with
midquarter convention, ACRS, ADS, SLS and DDB; automatic client letter/billing; fully integrated modules for 26 states; pop-up hlep screens; file compression program that shrinks size of typical corporate data file to less than 10Kb.