[YouCanDoIt]

On December 1, Year 4, Jim Miller placed in service office furniture (7-year life), which cost $28,000. Jim did not elect Section 179 expensing or bonus depreciation. The office furniture was the only asset purchased during the year. What amount can Jim claim as depreciation under MACRS for Year 4?

The answer was : $1,000
with the explanation:

First-year depreciation under MACRS is based on double declining balance. A 7-year life would yield depreciation of 2/7 the first year. Because the purchase was made in December, the mid-quarter convention is used and 1-1/2 months of depreciation is recorded. Depreciation is $1,000 ($28,000 × 2/7 × 1.5/12).

MY QUESTION:
WHY do we use 2/7 = .2857 for its “first” year , even though the MACRS table states 7-year–> year 1–> .1429

FAR: 76
REG: Currently studying
AUD:
BEC:

[Anonymous]

@youcandoit,

When you use a MACRS table the declining balance formula is adjusted for the half year convention, which assumes that you take a half year depreciation in the first year and last year of an asset's life. If you sell it before it is completely depreciated, then you take half year in the year of sale.

So 2/7 = .2857 and (2/7)/2 = .1429

Then you also the have the mid-quarter convention which is used in the question you posted. Because Jim's only purchase was in December (so more 40% of all purchases) you use the mid-quarter convention. If you use mid-quarter, then you ignore the half-year…

[YouCanDoIt]

benj2017, thank you so much!

FAR: 76
REG: Currently studying
AUD:
BEC:

[Author]

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