During the second quarter of Year 1, Barbara's Bakery purchased furnishings (7 year property) at an original cost of $15,000. She did NOT take bonus depreciation or Section 179 expense in the year of purchase. Due to other asset purchases in Year 1, the mid-quarter convention is being used for calculating the depreciation on the furnishings. If Barbara sells the furnishings in October of Year 4 how much can she deduct for depreciation in the year of sale

$1,571

Explanation:

MACRS mid-quarter convention for assets placed into service in the second quarter:

year                  depreciation %

1                             17.85%

2                            23.47%

3                            16.76%

4                            11.97%

5                            17.85%

Since Barbara sold the asset before the year's end, she must calculate the depreciation expense using a percentage of total depreciation per year:

depreciation for year 4 = asset's value x 21/24 half months x 11.97% = $1,571.06 ≈ $1,571