MACRS Mid-Quarter Convention Explained | 40% Test & Cost Recovery — CPA/EA Exam

What is the mid-quarter convention in MACRS depreciation? This lesson explains when the mid-quarter convention is mandatory, the more-than-40% fourth-quarter test, and how to compute cost recovery for personal property placed in service in each quarter — built for REG CPA Exam candidates, EA students, and accounting students studying depreciation and cost recovery. Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students. Video Timeline & Key Concepts: 0:00 — Introduction 0:00 — Purpose: curbing year-end tax abuse under the half-year convention 1:36 — When it applies: more than 40% of property placed in service in Q4 2:09 — How it works: assets treated as placed in service mid-quarter 4:06 — Months of depreciation allowed by quarter 7:10 — Example: $40,000 Q1 asset and $120,000 Q4 asset 8:08 — Using IRS depreciation tables to compute the deduction Frequently Asked Questions: What is the mid-quarter convention? The mid-quarter convention treats personal property as if it were placed in service or disposed of in the middle of the quarter in which the event actually occurs, rather than assuming a half year of depreciation. When is the mid-quarter convention mandatory? It becomes mandatory when more than 40% of the total basis of personal property placed in service during the year is placed in service in the fourth quarter. This prevents businesses from claiming a full half-year on late purchases. How many months of depreciation apply to each quarter? Under the mid-quarter convention, property placed in service in the first quarter gets 10.5 months, the second quarter gets 7.5 months, the third quarter gets 4.5 months, and the fourth quarter gets 1.5 months of depreciation. Why did the government create this convention? It was designed to curb tax abuse. Without it, a business could buy large amounts of equipment at year end and still claim six months of depreciation under the half-year convention, accelerating deductions in a way Congress wanted to limit. Does the mid-quarter convention apply to real property? No. The mid-quarter convention applies only to personal property. Real property such as buildings uses the mid-month convention instead, which is covered in a separate lesson. #CPAexam #CMAexam #enrolledagentexam #accountingcourses #collegecourses #courses #REG #MACRS #midquarterconvention #costrecovery #ProfessorFarhat #accountingstudents