Mid-Quarter Convention refers to a method used for depreciating assets when more than 40% of the total depreciable basis of assets is placed in service during the last quarter of the year.
Under the Mid-Quarter Convention, the depreciation deduction for the year is calculated based on the assumption that the assets were placed in service at the midpoint of the quarter in which they were acquired. This means that the depreciation expense is prorated based on the number of months the asset was in service during the year.
For example, if a business places an asset in service on January 15, the asset will be treated as having been placed in service on February 1 for depreciation purposes, allowing for a half-month’s worth of depreciation for January and the appropriate full months thereafter. This convention is important for businesses that experience significant asset acquisition in the latter part of the year, ensuring the depreciation expense reflects the actual use of the assets.
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