Final answer:
The mid-quarter test is applied after the Section 179 deduction and before bonus depreciation when calculating asset depreciation for tax purposes.
Step-by-step explanation:
The mid-quarter test is applied after the Section 179 expense has been deducted from an asset's basis, and before bonus depreciation is taken. This sequence matters for tax purposes, as each step affects the basis of the asset which in turn influences the depreciation calculations. The Section 179 deduction allows for an immediate expense deduction that can help to reduce taxable income, and it is taken before calculating depreciation under the Modified Accelerated Cost Recovery System (MACRS). Once Section 179 is applied, the mid-quarter test is conducted to determine the appropriate depreciation method for the remaining basis of the asset. Finally, any applicable bonus depreciation would be taken after the mid-quarter test. Bonus depreciation is a tax incentive that allows for a percentage of the cost of an asset to be deducted in the year the asset is placed in service.