Mid-Month Convention — Glossary — IRS Depreciation Rules

Mid-Month Convention

The MACRS placed-in-service convention applied to all real property — residential rental (27.5 years), nonresidential real (39 years), and qualified improvement property (15 years). Each real-property asset is treated as placed in service at the midpoint of the month it was actually placed in service.

STATUTE BASIS · IRC §168(d)(2) · Treas. Reg. §1.168(d)-1

In context

Mid-month applies regardless of placed-in-service date — there is no 40% test, no half-year fallback, no override. A building placed in service on January 15 takes 11.5 months of depreciation in year one; a building placed in service on July 1 takes 6 months; a building placed in service on December 31 takes 0.5 months.

Mid-month is also the convention used when real property is disposed during the year — the deduction is prorated to the midpoint of the month of disposition.

In cost segregation, the building shell continues to depreciate under mid-month at the original 27.5- or 39-year life. Only the components reclassified to 5-, 7-, or 15-year property leave the mid-month convention behind and pick up the half-year or mid-quarter convention applicable to personal property.