The Mid-Quarter Convention is a depreciation rule that affects how much depreciation you can claim during the year you place property in service or dispose of it.
Instead of treating the asset as placed in service or disposed of on its actual date, the IRS treats it as if the event happened at the midpoint of the quarter. Because of this, only part of a full year's depreciation is allowed in the first or last year.
What Is the Mid-Quarter Convention?
Under the Mid-Quarter Convention, property placed in service or disposed of during a quarter is treated as though it occurred in the middle of that quarter.
For a 12-month tax year, this generally means:
- Property is considered placed in service at the midpoint of the quarter in which it was acquired and placed in service.
- Property is considered disposed of at the midpoint of the quarter in which it was sold, retired, or otherwise removed from service.
- The depreciation deduction for that year is adjusted accordingly.
When Do the Quarters Begin?
For a full 12-month tax year, each quarter covers three months.
- First Quarter: Begins on the first day of the tax year.
- Second Quarter: Begins on the first day of the fourth month of the tax year.
- Third Quarter: Begins on the first day of the seventh month of the tax year.
- Fourth Quarter: Begins on the first day of the tenth month of the tax year.
For example, if your tax year follows the calendar year:
| Quarter | Months |
|---|---|
| First Quarter | January 1 - March 31 |
| Second Quarter | April 1 - June 30 |
| Third Quarter | July 1 - September 30 |
| Fourth Quarter | October 1 - December 31 |
How to Calculate Allowable Depreciation
Step 1: Calculate the Full-Year Depreciation
Divide the asset's cost by its useful life.
Formula:
Cost of Asset ÷ Useful Life = Full-Year Depreciation
Step 2: Apply the Mid-Quarter Percentage
Multiply the full-year depreciation amount by the applicable percentage based on the quarter in which the property was placed in service or disposed of.
Formula:
Full-Year Depreciation × Applicable Percentage = Allowable Depreciation
Property Placed in Service During the Year
For the year you place the property in service, multiply a full year's depreciation by the percentage below:
| Quarter Placed in Service | Percentage Allowed |
|---|---|
| First Quarter | 87.5% |
| Second Quarter | 62.5% |
| Third Quarter | 37.5% |
| Fourth Quarter | 12.5% |
Example
If an asset has a full-year depreciation amount of $1,000 and is placed in service during the second quarter:
$1,000 × 62.5% = $625
Your allowable depreciation deduction for that year would be $625.
Property Disposed of During the Year
If you dispose of property before the end of its recovery period, multiply a full year's depreciation by the percentage below:
| Quarter Disposed | Percentage Allowed |
|---|---|
| First Quarter | 12.5% |
| Second Quarter | 37.5% |
| Third Quarter | 62.5% |
| Fourth Quarter | 87.5% |
Example
If an asset has a full-year depreciation amount of $1,000 and is disposed of during the third quarter:
$1,000 × 62.5% = $625
Your allowable depreciation deduction for the year of disposition would be $625.
What If I Keep the Property for the Entire Recovery Period?
If you hold the property for its entire recovery period, the depreciation deduction for the final year is generally the remaining unrecovered basis of the property. In other words, any depreciation not previously recovered is claimed in the last year of the asset's recovery period.