How do I calculate the allowable depreciation using the Mid Quarter Convention?

What is Mid Quarter Convention? 

Under the Mid-Quarter convention, you would treat property placed in service or disposed of during any quarter of the tax year as placed in service or disposed of at the midpoint of that quarter. This means that, for a 12-month tax year, 1 1/2 months of depreciation is allowed for the quarter the property is placed in service or disposed of.

What dates do the quarters start?

A quarter of a full 12-month tax year is a period of 3 months:

• The first quarter in a year begins on the first day of the tax year.
• The second quarter begins on the first day of the fourth month of the tax year.
• The third quarter begins on the first day of the seventh month of the tax year.
• The fourth quarter begins on the first day of the tenth month of the tax year.

Calculating the allowable depreciation:

1. To calculate the allowable depreciation, you must divide the cost of the asset by the useful life. This provides you with the yearly allowable depreciation. (Cost of Asset /Useful Life= Yearly Allowable Depreciation)
2. Take the Yearly Allowable Depreciation from Step 1 and multiple it by the appropriate percentage from the charts below (placed in service mid quarter or disposed of mid quarter). This is the Allowable Depreciation for the year. (Yearly Allowable Depreciation  X  Percentage (Chart below) = Mid Quarter Allowable depreciation)

Property placed in service mid quarter

Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service:

Quarter                                Percentage

First .............................. 87.5%

 Second ........................... 62.5

Third ............................. 37.5

Fourth ............................ 12.5

Property disposed of mid quarter

If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property.

Quarter                                Percentage

First .............................. 12.5%

Second ............................ 37.5

Third .............................. 62.5

Fourth ............................. 87.5

Property held for entire recovery period?

If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the property.