When does the MACRS recovery period begin for assets placed in service mid-year?
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Under the MACRS (Modified Accelerated Cost Recovery System), the recovery period for an asset begins when the asset is "placed in service"—that is, when it is ready and available for a specific use in your trade or business or for the production of income, regardless of whether it is actually being used at that moment.
However, the precise timing for when depreciation begins within the year is determined by the applicable MACRS convention. The convention establishes the portion of the year for which depreciation is allowable in the year the property is placed in service (and in the year of disposition). The three main conventions are:
1. Half-Year Convention
- Default for most personal property.
- Treats all property placed in service during the year as if it was placed in service at the midpoint of the year, regardless of the actual date.
- The recovery period begins at the midpoint of the year, so in the first year, you get a half-year’s worth of depreciation, even if the asset was placed in service earlier or later in the year.
2. Mid-Quarter Convention
- Applies if more than 40% of the total basis of property (other than real property) is placed in service in the last three months of the year.
- Treats each asset as if it was placed in service at the midpoint of the quarter in which it was actually placed in service.
- For example, if an asset is placed in service in August (third quarter), it is treated as placed in service at the midpoint of the third quarter (e.g., August 15 for a calendar-year taxpayer).
3. Mid-Month Convention
- Applies to real property (residential rental and nonresidential real property).
- Treats property as placed in service at the midpoint of the month in which it is actually placed in service.
- For example, if a building is placed in service on April 25, it is treated as placed in service on April 15.
4. Summary Table
5. Practical Example
If you place a machine in service on July 10 (mid-year), and the half-year convention applies, the recovery period for depreciation purposes begins at the midpoint of the year (July 1 for a calendar-year taxpayer), and you claim a half-year’s depreciation for that first year.
If the mid-quarter convention applies and the machine is placed in service in August, the recovery period begins at the midpoint of the third quarter (August 15 for a calendar-year taxpayer).
If you place a building in service on April 25, the mid-month convention applies, and the recovery period begins at the midpoint of April (April 15).
In summary: The MACRS recovery period for an asset placed in service mid-year begins at the point specified by the applicable convention (mid-year, mid-quarter, or mid-month), not the exact date the asset is placed in service. The convention determines the start of the recovery period for depreciation purposes.
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