J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

42.7 Last Quarter Placements—Mid-Quarter Convention

A mid-quarter convention generally applies if the total cost basis of business equipment placed in service during the last three months of the tax year exceeds 40% of the total basis of all the property placed in service during the year. In applying the 40% rule, you do not count residential rental property, nonresidential realty, and assets that were placed in service and disposed of during the same year.

Under the mid-quarter convention, the first-year depreciation allowance for all property (other than nonresidential real property and residential rental property) placed in service during the year is based on the number of quarters that the asset was in service. Property placed in service at any time during a quarter is treated as having been placed in service in the middle of the quarter. The mid-quarter convention also applies to sales and disposals of property. The disposal is treated as occurring in the midpoint of the quarter.

EXAMPLE

During August 2012, you place in service office furniture costing $1,000, and in October, a computer costing $5,000. You are on the calendar year. The total basis of all property placed in service in 2012 is $6,000. As the $5,000 basis of the computer placed in service in the last quarter exceeds 40% of the total basis of all property placed in service during 2012, you must use the mid-quarter convention for the furniture and the computer. The office furniture, which is seven-year property, ...