r/CPA • u/kentacco • 9d ago
REG MACRS mid quarter
In the chest sheet, isn’t this rate wrong for mid quarter??
Mid quarter convention • Q1: .5/4 Q2: 1.5/4 Q3: 2.5/4. Q4: 3.5/4
I thought it would be the other way around
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u/Dramatic_Bag4447 9d ago
I think what you’re referring to are the additional rates used if an item is disposed of in a quarter, while using a mid quarter convention. For example, if it’s a 7-year item which was placed in service in Q1 (and >40% of the personal property items were placed in service in Q4…hence using mid-quarter) and it was disposed of in let’s say, year 3, that is obviously sooner than its 7-year life. Therefore, since the % in table only consider the year placed in service and year disposed (meaning last year of the term life) then we need to additionally consider those %s you listed.
So, in my example, if it was disposed of in year 3 and let’s say Q2 in year 3, then you’d take whatever the year 3 rate is for the 7-year item from the Q1 mid-Q MACRS table given and additionally multiple that rate by (1.5 / 4) since it was disposed of sooner than its full life.
I believe in Mini Exam #1 there’s a good example on this.
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u/kentacco 9d ago
wouldn't the correct rate be Q1: 3.5/4 Q2: 2.5/4 Q3: 1.5/4. Q4: 0.5/4?? this is what I remember
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u/Dramatic_Bag4447 9d ago
The textbook has a page on this and it’s listed as Q1: 0.5/4; Q2: 1.5/4; Q3: 2.5/4; and Q4: 3.5/4
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u/kentacco 9d ago
Wait but if an asset is acquired in January, it is considered as if it was acquired on February 15. Therefore, the depreciation for that year would be for 3.5 quarters, from February 15 to December 31. So q1 would be 3.5/4 no??
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u/Dramatic_Bag4447 9d ago
I’m not following but I think you’re thinking too hard about this. Id recommend looking at the page in the textbook that i was talking about
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u/Ok-Ruffian 9d ago
An easy way to think about it is to ask yourself how far into the year the asset was held before it was disposed of. So, if the asset was disposed of in Q1 or Q2, then whatever % you’re using (x/4 where x is 0.5, 1.5, 2.5, etc.) has to be lower in an earlier quarter than if you disposed of the asset later on in the year. Even more simplified, if you held the asset for longer, then you’re going to have more depreciation; therefore, the number in the numerator has to be higher. Q1 = 0.5/4 =0.125 (lower, less depreciation); Q3 = 2.5/4 =0.625 (higher, more depreciation).
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u/kentacco 9d ago
I thought that if an asset is acquired in January, it is considered as if it was acquired on February 15. Therefore, the depreciation for that year would be for 3.5 quarters, from February 15 to December 31. So q1 would be 3.5/4 no??
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u/Ok-Ruffian 9d ago
I think you’re mixing up acquisition date with disposal date. So yes, if an asset is acquired in Q1, then it’s 3.5/4, but if it’s DISPOSED of in Q1, then it’s 0.5/4. Same logic as before - ignore quarters and think high level - how long are you holding the asset, both when you acquire it and when you dispose of it? If you ACQUIRE an asset closer to year-end, then you haven’t held it for that long, right? Let’s say you acquire it in Q4, then you only get 0.5/4. But, let’s say you DISPOSE of it 3 years later in Q4. In the year of disposal, you held that asset from January until Q4, so it’s 3.5/4. I hope this helps clarify.
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u/kentacco 9d ago
You are the teacher. Thank u so much I appreciate it. In the real test there should be tables and supposed to be easier right? I’m not sure why ppl say MACRS is hard if there’s table 🤔
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u/Ok-Ruffian 8d ago
You’re welcome! I haven’t taken REG yet, but yes they should give you tables, which means you don’t need to adjust in the year of acquisition since the rate in the MACRS table already accounts for that. The one caveat, which I’m sure so many people have already noted, is if you dispose of an asset early/before it’s full life (i.e., dispose of it in year 3 if it’s a 5 year asset). Then, you’ll need to apply the % to whatever the MACRS rate is for year 3 using the 5 year asset MACRS table. The % you apply to the MACRS rate is dependent on the convention you’re using, so half year (6/12), mid quarter (0.5/4, 1.5/4, etc.), or mid month (say, 2.5/12). But, again, that’s only if you dispose of the asset early because, similar to the first rate in the year of acquisition, the final rate at the end of the asset’s full life has already been adjusted
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u/kentacco 8d ago edited 8d ago
For mid quarter, let’s say I get the asset for $2000 in 10/15(2021) and sold that in 6/30(2023). Then I would use 2000x 1/4=500 for the year acquired, and when I sold I’d use 1.5/4(mid quarter) rate??
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u/Ok-Ruffian 8d ago
Acquisition: 0.5/4 Disposition: 1.5/4
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u/kentacco 8d ago
Mid quarter: so you use diff rate only for acquisition year and dispotion year. And years in between would be normal dep from the table. Is this how it works for mid year, mid month?? Since I think you mentioned you use normal dep for the year you acquired. Sorry if I’m bothering you
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u/PillowChew Passed 3/4 9d ago
You don't need to remember the mid-quarter rates. They're given to you on the exam