Mid-Month Convention
Buildings use the mid-month convention: property is treated as placed in service, or disposed of, at the midpoint of the month. Personal-property components from the same closing generally use half-year or mid-quarter instead. First-year depreciation depends on the month. Educational information, not tax advice.
Educational information, not tax advice.
Updated 2026-10-14
Key takeaways
- Required for residential rental property, nonresidential real property, and railroad grading and tunnel bore.
- First-year depreciation depends on the month placed in service, not on a mid-year default.
- The same midpoint-of-the-month rule applies in the year of sale.
- Components separated in a study generally use the half-year or mid-quarter convention instead.
- Qualified improvement property is 15-year property and generally does not use mid-month.
Under §168(d)(2), the mid-month convention applies to nonresidential real property, residential rental property, and railroad grading or tunnel bore. Section 168(d)(4)(B) defines it: property is treated as placed in service, or disposed of, on the midpoint of the month. A building placed in service in March of a calendar tax year is treated as placed in service on March 15 and receives nine and one-half months of depreciation in that first year.
Because the building uses mid-month and personal property generally uses half-year, a cost segregation study produces assets with different conventions from the same placed-in-service date. The shell, walls, and other structural components stay on mid-month. Appliances, furniture, and most land improvements do not.
Mid-month is not optional for those real-property categories. It applies whether the taxpayer uses GDS or ADS. ADS changes the recovery period — 40 years for nonresidential real property, 30 years for residential rental property placed in service after 2017 — but not the convention.
The mid-quarter 40 percent test does not include these real-property categories. A December closing of a 39-year office building does not, by itself, force mid-quarter on the year’s equipment. The personal property inside that closing can still trip the test.
This page is educational information, not tax advice. Depreciation software applies the convention once the class is set. The taxpayer’s CPA checks that the building class and the convention match.
First-year fractions
Publication 946’s mid-month tables assign a first-year percentage based on the month placed in service. January is 11.5 months; December is 0.5 months. Those fractions already assume straight line and zero salvage, which §168 requires for these classes.
A short tax year has additional rules. This page does not compute a short-year mid-month fraction. The Form 4562 instructions discuss short years under Part III.
Placed-in-service month is a facts question. A certificate of occupancy, completion of systems, and readiness for rent are evidence. See the placed-in-service page. Using the closing date as a shortcut can be wrong if the building was not yet ready.
Qualified improvement property
Qualified improvement property is 15-year property under §168(e)(3)(E), not nonresidential real property. It generally uses the half-year or mid-quarter convention rather than mid-month. Section 168(b)(3) requires straight line for QIP, but that is the method, not the convention.
Interior work that fails the QIP definition — an enlargement, an elevator, or internal structural framework, or work on a residential rental building — remains with the building class and keeps mid-month.
Your CPA’s depreciation software applies the correct convention once the class is set. Mis-tagging QIP as 39-year property is both a period error and a convention error.
On sale
The convention also applies in the year of disposition. A building sold in any month is treated as disposed of in the middle of that month. Depreciation in the sale year is the mid-month fraction for that month, not a half year and not a full year.
Partial dispositions of a structural component, if the taxpayer elects under Treas. Reg. §1.168(i)-8(d), use the same convention that applied to the building. The retired portion’s remaining basis comes off the schedule as of the disposition month’s midpoint.
Gain or loss on the sale is a separate computation under §§1001, 1245, and 1250. The convention only sets how much depreciation is allowed in the year of sale.
Why studies mention it
Readers sometimes expect every line in a study to use the building’s month. That would understate first-year depreciation on personal property placed in service in the first half of the year and overstate it on property placed in service late, relative to half-year.
The statute assigns conventions by class, not by the closing binder. A study that puts 5-year property on mid-month is applying the wrong rule.
ADS elections and electing real property trades or businesses do not move a building onto half-year. They lengthen the period and keep mid-month.
As of October 16, 2026, bonus depreciation at 100 percent for qualified property acquired after January 19, 2025 does not change the building’s mid-month convention. The building is not qualified property. Bonus, if it applies, is on the shorter-lived components that use half-year or mid-quarter.
This page is educational information, not tax advice. Confirm the placed-in-service month from readiness, not from the closing date alone, before the first-year fraction is computed.
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.