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.
If you dispose of property before the end of its recovery period (42.5), your deduction for the year is figured by multiplying a full year of depreciation by the percentage listed in the following chart for the quarter in which you disposed of the property.
Quarter | Percentage |
First | 12.5% |
Second | 37.5% |
Third | 62.5% |
Fourth | 87.5% |
18.223.106.33