Half-Year Convention
The half-year convention treats personal property as placed in service, or disposed of, at the midpoint of the tax year, regardless of the actual month. It is the default convention under §168(d). Buildings use mid-month instead. Educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Half-year is the default convention for property other than the real-property categories that use mid-month.
- Property is treated as placed in service or disposed of at the midpoint of the tax year.
- A 5-year asset is therefore recovered over six tax years, and a 7-year asset over eight.
- The mid-quarter convention replaces it when more than 40% of the year’s tested basis is placed in service in the last quarter.
- Buildings use mid-month, not half-year.
Under §168(d)(1), except as otherwise provided, the applicable convention is the half-year convention. Section 168(d)(4)(A) defines that convention: it treats all property placed in service during any taxable year, or disposed of during any taxable year, as placed in service or disposed of on the midpoint of that year. A machine placed in service in January and a machine placed in service in December are treated the same for the first-year fraction.
Because of the convention, a 5-year asset is depreciated over six tax years and a 7-year asset over eight. The extra year is the second half of the first year plus the first half of the year after the stated recovery period ends. MACRS percentage tables in Publication 946 already build that in.
The same midpoint rule applies on disposition. Selling a 5-year asset in any month of a later year is treated as a mid-year disposition for the depreciation allowed in the sale year. The manner of disposition — sale, retirement, or abandonment — does not change the convention. Gain or loss is a separate computation.
Half-year is the default for personal property and for land improvements. It is not the convention for residential rental property, nonresidential real property, or railroad grading or tunnel bore. Those categories use mid-month under §168(d)(2). A cost segregation study of one building therefore produces assets with different conventions from the same closing date.
This page is educational information, not tax advice. Whether mid-quarter replaces half-year for a given year is a computation on that year’s placed-in-service list. See the mid-quarter page.
When it does not apply
Residential rental property and nonresidential real property use the mid-month convention instead. Railroad grading or tunnel bore does too. Those categories are listed in §168(d)(2).
All other property uses the mid-quarter convention for the year if the aggregate bases of property placed in service in the last three months exceed 40 percent of the aggregate bases of all property placed in service that year, after excluding the real-property categories and property placed in service and disposed of in the same year. Section 168(d)(3) is the test.
Property placed in service and disposed of in the same year generally produces no depreciation. That is a convention result, not a change to whether the property was of a character subject to §167.
Why it matters for a study
In a cost segregation study of a building placed in service late in the year, a large amount of personal property may be treated as placed in service in the last quarter at once. That basis counts in the mid-quarter test. One fourth-quarter closing can change the convention for every other personal-property asset placed in service that year.
The building itself still uses mid-month. The study does not put the shell on half-year. Components that are personal property generally start on half-year unless the 40 percent test is failed.
Qualified improvement property is 15-year property, not nonresidential real property, so it generally uses half-year or mid-quarter rather than mid-month. Depreciation software applies the convention once the class is set. The CPA checks the setting.
Tables and short years
Publication 946 and the Form 4562 instructions tell filers to use the IRS percentage tables that already incorporate the convention. Applying a full-year 200 percent declining-balance rate to a mid-year asset would overstate the first year.
Short tax years have additional rules. This page does not compute a short-year fraction. The Form 4562 instructions discuss short tax years under Part III.
Electing 150 percent or straight line by class does not, by itself, change the convention. The convention is a separate §168(d) item from the method in §168(b).
Bonus depreciation and the first-year fraction
The additional first-year allowance under §168(k) is a percentage of qualified basis in the placed-in-service year. As of October 16, 2026, that percentage is 100 percent for qualified property acquired after January 19, 2025. The half-year convention then applies to any remaining depreciable basis, which may be zero if the full cost was taken as bonus or §179.
If the taxpayer elects out of bonus, or if the property is on the phase-down, regular MACRS including half-year applies to the remaining basis. The convention does not change the bonus rate. The rate is an acquisition-date and eligibility question.
Do not treat half-year as a reason a late-year purchase is “almost a full year” of bonus. Bonus, if it applies, is the statutory percentage. Half-year affects the MACRS remainder.
Sources
- 1
- 2IRS Publication 946 — How To Depreciate Property (2025)(opens in a new tab)
Appendix B reproduces the Rev. Proc. 87-56 class lives.