Mid-Quarter Convention — Glossary — IRS Depreciation Rules

Mid-Quarter Convention

The MACRS placed-in-service convention applied when more than 40% of a taxpayer's depreciable basis in personal property is placed in service during the fourth quarter of the tax year. Each asset is then treated as placed in service at the midpoint of the quarter it was actually placed in service.

STATUTE BASIS · IRC §168(d)(3) · Treas. Reg. §1.168(d)-1

In context

The mid-quarter convention is a guardrail against year-end loading. Without it, a taxpayer could place all depreciable assets in service on December 31 and still claim a half-year of depreciation under the default half-year convention. The mid-quarter rule re-allocates each asset’s first-year depreciation to the actual quarter the asset went into service.

The 40% test is applied across all of the taxpayer’s MACRS personal property for the year — not asset-by-asset. Real property (residential rental, nonresidential, QIP) is excluded from the test entirely; real property uses the mid-month convention regardless.

If the threshold is crossed, mid-quarter applies to every MACRS personal property asset placed in service during that year, not just the Q4 assets. Planning around the 40% boundary is a recurring cost segregation timing decision.