If you depreciate assets using the Modified Accelerated Cost Recovery System (MACRS), you may need to use the mid-quarter convention instead of the standard half-year convention.
An asset is considered mid-quarter property when all of the following apply:
- The asset is depreciated using MACRS.
- The asset was placed in service during the last three months of the tax year.
- The total depreciable basis of qualifying assets placed in service during the last three months of the year is more than 40% of the total depreciable basis of all MACRS property placed in service during the entire year.
When these conditions are met, the IRS requires the mid-quarter convention for eligible property.
What Does Mid-Quarter Property Mean?
You generally use the mid-quarter convention when:
- The mid-month convention does not apply, and
- More than 40% of the depreciable basis of the MACRS property you placed in service during the year was placed in service during the final three months of the tax year.
Certain property is excluded from this calculation, including:
- Nonresidential real property
- Residential rental property
- Railroad grading or tunnel bore property
- Property placed in service and disposed of during the same year
- Property depreciated under a method other than MACRS
Under the mid-quarter convention, property is treated as if it were placed in service at the midpoint of the quarter in which it was actually placed in service. As a result, you generally receive 1½ months of depreciation during the quarter the asset is placed in service or disposed of.
How Do I Enter Mid-Quarter Property in the Program?
To enter an asset that qualifies as mid-quarter property, follow these steps:
- Go to Federal.
- Select Income (Select My Forms).
- Choose Profit or Loss from Rentals and Royalties.
- Select Depreciation.
- Open Assets.
- Check the box indicating that the asset is Mid-Quarter Property.
Once selected, the program will apply the appropriate depreciation convention and report the asset correctly on Form 4562.