Marlena acquired the following new assets during 2017:

Date Asset Cost

April 30 Computers $22,000

August 1 Automobile (GVW rating of over 6,000 pounds) 38,000

December 30 Office furniture 100,000

Marlena does not elect immediate expensing under § 179 or any additional first-year depreciation for 2017.

If required, round your answers to the nearest dollar. Click here to access the depreciation table to use to complete this problem.

What MACRS convention applies to the assets?

(A) Half-year

(B) Mid-quarter

(C) Mid-month

(D) Half-year

(A) Half-year and (D) Half-year

Explanation:

MACRS stands for Modified Accelerated Cost Recovery System and is the most commonly-used tax depreciation method. Without getting into too much detail, MACRS is accelerated depreciation that allows for a larger deduction while the asset is still new. By comparison, straight-line depreciation gives you the same deduction year after year over the asset's useful life. MACRS cannot be used for intangible property, nor can it be used to depreciate. MACRS convention determines the number of months for which you can claim depreciation during a partial year, either when you first placed the asset in service or when you disposed of it. The mid-month convention only applies to residential rental property, nonresidential real property, and railroad grading or tunnel bore. It simply means that you get a half month's worth of depreciation no matter when that asset was placed into (or taken from) service during that month, whether that was at the beginning, middle, or end of the month. The half-year convention works the same way but instead of the month it goes by the year. In other words, you'll get 6 months' depreciation if the asset was placed into service or disposed of during the year, no matter if it was in January or December.