Depreciation with Dates

The Three MACRS Timing Conventions and When Each Applies

The IRS uses three distinct timing conventions under MACRS, each producing a different first-year deduction based on when during the year an asset is placed in service. The half-year convention is the default for personal property (equipment, vehicles, computers) and treats all assets as if acquired at the exact midpoint of the tax year — June 30 for a calendar-year taxpayer. Under this rule, a $100,000 machine placed in service on January 3 earns the same first-year deduction as one placed in service on December 28: exactly half of the full-year amount. The mid-quarter convention overrides half-year when more than 40% of annual depreciable asset acquisitions occur in Q4, requiring each asset to use the midpoint of its actual acquisition quarter. The mid-month convention applies exclusively to real property (buildings), treating the asset as placed in service at the midpoint of the month — so a building purchased on March 15 earns 10.5 months of depreciation in year one (half of March plus April through December).

How the Placed-in-Service Date Anchors Your Entire Schedule

The placed-in-service date is not the purchase date, the payment date, or the delivery date — it is the date the asset is ready and available for use in the business. An industrial machine delivered November 1 but requiring three weeks of installation and calibration before it can operate is placed in service in late November, not on delivery. This distinction matters because the placed-in-service date determines which tax year begins depreciation and which convention applies. An asset placed in service on December 27 instead of January 4 can generate a full year's worth of deductions under the half-year convention — a timing choice that, for a $500,000 equipment purchase in a 24% tax bracket, creates approximately $24,000 in additional current-year tax savings. Conversely, placing too many assets in service in Q4 triggers the mid-quarter convention, potentially reducing Q4 asset deductions by more than 80% compared to Q1 placements.

Short Tax Years and Partial-Year Proration Rules

New businesses, businesses that change their fiscal year, and S-corporations or partnerships formed mid-year face a short tax year — a period of less than 12 months. MACRS depreciation in a short year must be reduced proportionally: multiply the normal annual deduction by the number of months in the short year divided by 12. A business incorporated on April 1 with an initial fiscal year running April 1 through December 31 (9 months) would claim 9/12 (75%) of the normal first-year MACRS deduction. Additionally, the applicable convention still applies within the short year — a piece of equipment placed in service in August of a 9-month short year uses the half-year convention, resulting in a first-year deduction of 50% of the annual amount × 75% of the year = 37.5% of the theoretical full-year amount. Tracking these adjustments correctly is essential to avoid overclaiming in the first year, which the IRS can flag during examination.