How to depreciate an office furniture using
mid-Quarter convention?
An office furniture
belongs to 7 years property class life
Business A purchased
3 office furniture for business use only in 2020 as follow:
1-15-2020: CEO Chair
for $4,000 (quarter 1)
8-1-2020: Office
Chair for 1,000 (quarter 3)
10-1-2020: Office
Desk for $5,000 (quarter 4)
Calculate the
depreciation deduction for 2020
Business A purchased and placed in service a depreciable asset
in the last quarter of 2020. Therefore, you need to find out if business A is
required to use Mid-Quarter convention.
Since the assets are 100% business use and are placed in
service or ready to be used in the business on the same dates they were purchased,
their purchased cost including sales tax and delivery cost are the cost for
depreciation. Business A is not claiming Section 179 nor special depreciation allowance
on any of the 3 assets.
Total cost for depreciation = Basis for depreciation =
4,000+1,000+5,000 = $10,000
Last quarter asset is $5,000 which is more than 40% of the
total cost for all asset placed in service in 2020 by Business A. Therefore,
you should use mid-quarter convention for all assets placed in service for
2020.
On page 69 of IRS 2019 Publication 946 There is Appendix A
MACRS Percentage Table Guide for GDS and ADS Depreciation Systems.
Refer to that table to locate your asset property class
life, and the name of the depreciation rate table to use that corresponds to
the convention you will use.
Your office furniture is in 7-year property class life and
you will use mid-quarter convention. The depreciation rate tables to use are:
A-2 for quarter 1 asset
A-4 for quarter 3 asset
A-5 for quarter 4 asset (Desk)
And that is if you want to use 200% depreciation method. If
you prefer 150% declining balance method or Straight-line method, you need to
look at the name of the rate table that correspond to their rows.
Now that we took note of the table names, scroll down to
locate them.
Have your spreadsheet ready.
Once you find the rate table for each asset, copy the rate
to your depreciation spreadsheet. Since you are required to use the rate for
all the years you will depreciate the asset once you started to use the rate
from the table, it is a good idea to copy them down so that every year you are
ready to file your business tax, you don’t need to go back and look for the
rate for that year. You have the depreciation deduction for every year on your
spreadsheet to reference. Assuming the basis of depreciation won’t change due
to theft and casualty deduction.
The rate is in the rate table in the property class life
column (7years in this example). Copy all the rate from 7 years column. Because
the recovery period is 8 years, you have 8 rates.
The video explains how to depreciate 7-year property class
lives using mid-quarter convention
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