J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Mid-Quarter Convention

Under the mid-quarter convention, all property placed in service during the year (or disposed of during the year) is treated as placed in service (or disposed of) in the middle of the applicable quarter. The mid-quarter convention applies (and the half-year convention does not) if the total bases of all property placed in service during the last 3 months of the year (the final quarter) exceed 40% of the total bases of property placed in service during the entire year. In making this determination, do not take into consideration residential or nonresidential real property or property placed in service and then disposed of in the same year.

Example

You are on a calendar year. In January 2012, you place in service machine A, costing $3,000. In November 2012 you place in service another machine, machine B, costing $10,000. (Assume neither machine qualifies for bonus depreciation.) You must use the mid-quarter convention to calculate depreciation for both machines. This is because more than 40% of all property placed in service during the year ($13,000) was placed in service in the final quarter of the year ($10,000). (Actually, 77% of all property placed in service in the year was placed in service in the final quarter of the year.)

Example

Continue with the same machine situation, except that machine B is placed in service in January and machine A is placed in service in November. In this instance, the mid-quarter convention does not apply because ...