MACRS Depreciation: HY vs MQ Convention - YouTube

Hi team! We are here today talking about  half year or mid-quarter convention,  

so which one will we use? So you  typically would want to evaluate this  

all year long if you are doing estimated tax  payments you would want to predict what your  

4th quarter placed in service assets  are but often times this just comes at  

the end of the year when you are calculating tax  depreciation for your company or for your clients.  

So the rule is if more than 40% of your assets  were placed in service during the 4th quarter  

you're going to use mid-quarter and if 40%  or less of your assets were placed in service  

during the 4th quarter you're going to use half  year and this placed in service I just wanted  

to mention so often times you'll hear people  say purchased - you would purchase an asset...  

but technically an asset is not depreciable until  you place it in service, until you start using it  

and you'll see this a lot with like construction  companies - they might buy a piece of machinery  

in January or February and then they  don't start using it until April or March  

and so it would be treated as placed in service  during the quarter it is placed in service,  

not when it was purchased, so that is  the distinction although those terms  

are often used interchangeably and if I  use the term "purchased" in this video,  

I really mean "placed in service." So I do have  the quarters up here just in case you're not  

familiar with them. These would be the quarters  for a standard calendar year company or client.  

Of course they would change if they  had a different fiscal year end.  

So I have just 2 quick examples for us. For the  first one, a company placed the following assets  

in service during their current year, so on  January 20th they placed in service $34,000  

of assets so this would be Q1, February 17th  was $29,000. That would be another Q1, and  

then on October 3rd, they put in a $1,000 asset  which would be Q4, so in total they had $64,000,  

so our next step would be to take our Q4  assets and divide by total assets to see  

what percentage was placed in service in the  fourth quarter, so our Q4 asset total was $1,000  

and then our total overall for the whole year  was $64,000, so we're going to take this $1,000  

Q4 and divide by the $64,000 total for  the whole year so Q4 divided by total,  

that's going to give us just over 1.5% and so  that's less than 40%, so that means we're going  

to use half year, so less than 40%, or I guess 40%  or less would be more technically correct. Okay  

so then let's look at our example #2, so for  example #2, a company placed the following assets  

in service, so they had on January 20th again  the $34,000, so Q1. February 17th $29,000 Q1,  

and then on October 3rd, now this time instead of  $1,000 they're gonna place in service $100,000,  

so either more assets or just a larger asset, so  this is going to be a Q4 placed in service and  

then a total of $163k for the year. So we're going  to follow the same steps where we're going to take  

the quarter 4 assets and we're going to divide by  the total. So this time Q4 assets were $100,000  

the total assets were $163k, so again you're  just going to do that math where you take the Q4  

and divide by total, so Q4 divided  by total. This time it gives us 61%,  

so because this is more than 40%, we're  going to use the mid-quarter convention.  

All right so now you know how to decide half  year or mid-quarter! If you're interested in  

calculating depreciation now that you know  which method to use, go check out those videos!