Conventions

When using MACRS or ADS the following conventions are used.

Half-Year - When the half-year convention is applied, a half-year of depreciation is taken for the first year the asset is placed in service regardless of what month the asset was placed in service. A full year's depreciation is taken each year for the remainder of the useful life of the asset. If the asset is disposed before the end of its useful life, a half year of depreciation is taken for the year of disposal regardless of the month in which the asset was disposed. If the asset is kept for the asset's entire useful life, half a year of depreciation is taken in the year following the last year of its useful life.

Mid-month - This convention only applies to residential rental property, nonresidential real property, railroad gradings and tunnel bores. The asset is considered to have been placed in service in the middle of the month and a half of a month's depreciation is calculated for the month the asset is placed in service. If an asset is disposed before the end of its useful life, it is considered to have been disposed in the middle of the month and half of a month's depreciation is calculated for the month in which the asset is disposed.

Mid-quarter When this convention is applied, depreciation is calculated as if the asset was placed in service or disposed at the mid-point of the quarter. For example, if an asset were placed in service in January, depreciation would be calculated as if the asset had been placed in service in the middle of February, the midpoint of the first quarter.

Generally, any property placed in service during the course of a year receives a half-year's depreciation under the half-year convention. However, a special rule applies if you place in service more than 40% of the total basis of property for the year in the last quarter of your fiscal year. That's to avoid waiting until the end of the year to buy the property, yet secure a deduction for the whole year. When calculating the total basis of property placed in service, exclude any on which you took the Section 179 expense election. For real estate, a mid-month convention is used.

In determining whether the mid-quarter convention applies, do not take into account the following:

Non MACRS properties.
Residential rental property, nonresidential real property or railroad grading, and tunnel bores.
Property placed in service and disposed of in the same tax year.