The MACRS half-year convention treats eligible property as placed in service or disposed of at the midpoint of the tax year.
The half-year convention for depreciation is a U.S. federal MACRS timing rule that treats eligible property as placed in service or disposed of at the midpoint of the tax year, regardless of the actual day. For a twelve-month tax year, it generally allows one-half year of regular MACRS depreciation in the first and disposal years.
It is a tax convention, not a general IFRS or U.S. GAAP book-depreciation principle. The convention determines timing after the taxpayer identifies the correct tax basis, property class, depreciation system, method, and special deductions.
A simplified MACRS sequence is:
The convention is therefore not a depreciation method. The method determines the rate pattern; the convention determines the assumed portion of the tax year.
| Convention | General use | Timing assumption |
|---|---|---|
| Half-year | Applicable MACRS property when the other conventions do not apply | Midpoint of tax year |
| Mid-quarter | Applicable property when more than 40% of tested basis is placed in service in the last three months | Midpoint of the relevant quarter |
| Mid-month | Residential rental property, nonresidential real property, and specified property | Midpoint of the month |
The actual rules include excluded property, short-year calculations, and basis adjustments. Real property subject to mid-month treatment is excluded from the mid-quarter concentration test.
A calendar-year business places $50,000 of five-year equipment in service in February. Assume:
The IRS five-year MACRS table using the half-year convention provides these percentages:
| Recovery year | Rate | Deduction on $50,000 |
|---|---|---|
| 1 | 20.00% | $10,000 |
| 2 | 32.00% | $16,000 |
| 3 | 19.20% | $9,600 |
| 4 | 11.52% | $5,760 |
| 5 | 11.52% | $5,760 |
| 6 | 5.76% | $2,880 |
| Total | 100.00% | $50,000 |
Although the property has a five-year recovery period, deductions span six tax years because the first and final years each contain a half-year under the convention. The table also builds in the declining-balance-to-straight-line switch; simply dividing cost by five and halving the result would produce the wrong MACRS schedule.
The mid-quarter convention generally applies when more than 40% of the tested depreciable basis of applicable MACRS property placed in service during the tax year is placed in service during the final three months.
Suppose a business places $110,000 of tested property in service from January through September and $90,000 from October through December:
Because 45% is more than 40%, the mid-quarter convention generally applies to the applicable property placed in service during the year, not just the fourth-quarter assets.
For this test, IRS Publication 946 explains exclusions and basis rules. Tested basis reflects Section 179 reductions and the nonbusiness-use portion, but generally not the special depreciation allowance reduction. Property placed in service and disposed of in the same year and property outside MACRS are among the exclusions.
The convention also affects the disposal year. Property subject to the half-year convention is generally treated as disposed of at the year’s midpoint, producing a half-year deduction before gain or loss is calculated, subject to the applicable rules.
For a short tax year, midpoint does not automatically mean six months. The taxpayer applies the IRS short-year method to the actual tax-year length. Mid-quarter testing also has special short-year rules.
If business use falls, listed-property rules or recapture can override a simple table calculation. Property converted between personal and business use requires separate basis and placed-in-service analysis.
Financial-reporting depreciation ordinarily begins when an asset is available for use and follows the expected consumption pattern under the applicable accounting framework. A company can therefore record book depreciation from the actual available-for-use date while using the MACRS half-year convention for federal tax.
The difference can create a temporary book-tax difference and deferred tax balance. It does not mean either schedule should be substituted for the other.
This page provides general U.S. federal information as of August 2026. It is educational and does not provide tax, accounting, legal, or investment advice.