Question

Convers Corporation (calendar-year-end) acquired and placed in service the following assets during the current tax year: Machinery: original basis = $84,000; placed in service on October 25 Computer equipment: original basis = $24,000; placed in service on February 3 Used delivery truck*: original basis = $37,000; placed in service on March 17 Furniture: original basis = $164,000; placed in service on December 22 *The delivery truck is not a luxury automobile. What is the applicable depreciation convention for the assets Convers placed in service this year assuming Convers elects out of bonus depreciation and does not take §179 expense?

Answer 1

In order to determine the applicable Depreciation convention for the assets placed in service this year, calculate the percentage of assets placed in service during the last quarter of the year by Convers Corporation to that of the total assets placed during the year.

Assets placed in service during the last quarter of the year:-

Asset	Date placed in service	Original cost
Machinery	October 25	84,000
Furniture	December 22	164,000
	Total	248,000

Assets placed in service during the entire year:-

Asset	Date placed in service	Original cost
Machinery	October 25	84,000
Computer equipment	February 3	24,000
Used Truck	March 17	37,000
Furniture	December 22	164,000
	Total	309,000

The percentage of assets placed during the last quarter of the year as a percentage of total assets placed during the year is :-

$248,000/$309,000 = 80.26%

Per IRS, the Mid-quarter convention should be used to depreciate the assets if the company places more than 40% of the assets during the last quarter of the year.

Hence, the applicable depreciation convention for Convers company's assets placed in service this year assuming Convers elects out of bonus depreciation and does not take Section 179 depreciation is "Mid-Quarter Convention".