Key Takeaways
- Half-Year Convention = default for personal property (6 months Year 1).
- Mid-Quarter Convention = mandatory if 40%+ of assets placed in service in Q4.
- Mid-Month Convention = used ONLY for real property (buildings).
- Conventions apply to both acquisition and disposition years.
- Mid-Quarter affects ALL personal property placed in service that year.
Last updated: January 2026
Depreciation Conventions
Why This Matters for the Exam
Conventions determine first-year depreciation. The 40% test is heavily tested. Know which convention applies and how to calculate.
Expect at least 3-4 questions on conventions.
The Three Conventions
| Convention | Applies To | First-Year Effect |
|---|---|---|
| Half-Year | Personal property (default) | 6 months |
| Mid-Quarter | Personal property (40% test) | Varies by quarter |
| Mid-Month | Real property only | Varies by month |
Half-Year Convention (Default)
| Rule | Effect |
|---|---|
| Acquisition | Treated as placed in service July 1 |
| Disposition | Treated as disposed July 1 |
| First-year depreciation | 6 months |
| Last-year depreciation | 6 months |
The 40% Test (Mid-Quarter Trigger)
| Test | Description |
|---|---|
| If: | Personal property in Q4 > 40% of total |
| Then: | Mid-Quarter Convention for ALL personal property |
| Excludes: | Real property, §179 elected amounts |
Mid-Quarter Months by Quarter
| Quarter Placed | Treated As | Months of Depreciation |
|---|---|---|
| Q1 (Jan-Mar) | Feb 15 | 10.5 months |
| Q2 (Apr-Jun) | May 15 | 7.5 months |
| Q3 (Jul-Sep) | Aug 15 | 4.5 months |
| Q4 (Oct-Dec) | Nov 15 | 1.5 months |
Mid-Month Convention (Real Property Only)
| Month Placed | Mid-Point | Months of Depreciation |
|---|---|---|
| January | Jan 15 | 11.5 months |
| June | Jun 15 | 6.5 months |
| August | Aug 15 | 4.5 months |
| December | Dec 15 | 0.5 months |
40% Test Example
| Purchase | Quarter | Amount |
|---|---|---|
| Equipment A | Q1 | $20,000 |
| Equipment B | Q3 | $30,000 |
| Equipment C | Q4 | $50,000 |
| Total | $100,000 | |
| Q4 % | 50% | |
| Result | Mid-Quarter Required |
Real-World Scenario
Scenario: Dental practice buys $10,000 X-ray (Q1) and $50,000 chairs (Q4).
- Total: $60,000.
- Q4 placement: $50,000 (83%).
- Test: >40% → Mid-Quarter applies.
- X-ray (Q1): 10.5 months depreciation.
- Chairs (Q4): 1.5 months depreciation.
On the Exam
Expect 3-4 questions on conventions, typically:
- 40% Test Questions: "Which convention is required?"
- Months Questions: "How many months for Q2 under Mid-Quarter?"
- Real Property Questions: "What convention for buildings?"
The key is to remember: Half-Year = default (6 months). Mid-Quarter if Q4 > 40%. Mid-Month for buildings only.
Test Your Knowledge
Asset placed in service Q2 under Mid-Quarter. Months of depreciation?
A
B
C
D
Test Your Knowledge
$100,000 equipment: $20,000 Q1, $30,000 Q3, $50,000 Q4. Which convention?
A
B
C
D
Test Your Knowledge
Asset sold Oct 1 using Half-Year. Months of depreciation in sale year?
A
B
C
D