Home Add to Favorite Contact Submit  
             28 January, 2021

Category:  Articles » Finances » Taxes


Understanding Depreciation Conventions

         Views: 1888
2008-02-04 03:50:59     
Article by Simon Elisha

When choosing to depreciate a business asset, you need to choose both a method and a convention. A convention simply refers to figuring how much of the item basis you may depreciate the first year, based on when during that year you purchased and put the item to use in your business. This article will explain the differences between the half-year convention, the mid-quarter convention, and the mid-month convention.

Half-Year Convention (H/Y) Under the half-year convention, your item is treated as though it was purchased and placed in service at the mid-point of the first year, no matter when during that year the purchase was actually made. Therefore, only half of the otherwise allowable depreciation amount is able to be deducted during the first year.

The half-year convention is standard with all depreciation and must be used unless the mid-quarter convention rules apply. (Except in the case of depreciating the business use of your home, in which case the mid-month convention applies the first year. This is explained below.) The half-year convention is built into depreciation tables found in IRS Publication 946.

-Example: Using the straight-line method of depreciation (because it is easier for me to demonstrate the half-year example using S/L), Morgan is able to depreciate her office desk (seven year property), used 100% for business, over a seven year recovery period. Her basis in it (the amount she paid) is $700. She is able to take equal, $100 deductions each of the seven years. Because of the half-year convention, however, she may only deduct half of that in the first year.

Year One - $50

Years Two through Seven - $100 each year

Year Eight - $50

Morgan may continue to take a deduction into an additional year (year eight) beyond the desk recovery period (seven years) in order to fully depreciate it.

Mid-Quarter Convention Under the mid-quarter convention, all property placed in service during a particular quarter of the year is treated as having been acquired at the mid-point of that quarter. Depreciation tables with the mid-quarter convention built in may be found in IRS Publication 946.

The mid-quarter convention only applies if more than 40% of the combined bases of property is placed in service during the last three months of the tax year. Section 179 deductions are not included when figuring this amount.

You can avoid the mid-quarter convention in a couple of ways. Plan your purchases, so over 40% of the cost of them does not get spent at the end of the year, by buying early or waiting until January. You could also choose to use Section 179 to expense some of your end of the year equipment purchases. Those items' bases would then not be a part of your calculation of the 40% mark.

Mid-Month Convention When you depreciate the business percentage of your home office, you will use the mid-month convention in the first year. This means you may only deduct expenses beginning in the month you first began using the home for business purposes. This not only includes using mid-month depreciation tables, but it also means you may only deduct other business-related expenses for the home from that month forward.

Simon Elisha, author, Taxes for Online Sellers-
A How-To Guide for Individuals on Federal Tax for Internet Sales
ISBN: 978-0-9796328-0-8
Copyright 2007 -2008

Specialized in: Conventions
URL: http://www.taxesforonlinesellers.com
Print article      Bookmark this page
Related Articles 
How Much Will My Tax Deduction Be if I Donate My Car? (Popularity: ): Often one of the first questions a person has when deciding what to do with a car they no longer want is “What will my tax deduction be if I donate it to charity?” When you donate car to charity the amount you can claim on your itemized federal tax return depends on two things; the fair market value of your car and what the charity does with the car.The ...
Ways to Qualify For a UK Income Tax Refund (Popularity: ): How does a resident of the United Kingdom qualify for a fast online tax return? One third of Pay As You Earn employees are owed a repayment on their income taxes. There are many reasons why this may occur, but the main one is that the system is far from perfect.Consider some of the following scenarios. Anyone who has been employed for under a year are often due for cheap ...
Getting a Copy of Your Past Tax Returns (Popularity: ): Tax returns are part of our "important documents" when it comes to finances. If you want to get a mortgage or loan, you might be required to show copies of them. So, what do you do if you can't find the returns for a particular year? Well, there is no need to stress.The first thing to understand is the IRS is your friend in this regard. For all the discussion ...
Guidance on Creating Tax Receipt (Popularity: ): A tax receipt is very important to simply keep track of the various types of taxes paid by you to the government.Here is how you can actually create a tax receipt.The first thing that you have to do is simply keep track of your tax payments. When you pay a tax you must get a receipt, you should keep it with you always.Use the information provided on the current receipt ...
Tax Evasion - This is What You Get For Doing It (Popularity: ): Paying taxes can be hard, but not paying them at all or doing something that could be classified as an act of tax evasion can make things worse, if you're caught that is. I'm not saying that you should use "methods" that can keep you from making the payments; I'm warning you or telling you that there will be corresponding penalties for tax evasion. Now in general, there are two ...

Related Business 
Depreciation Valuation Services (Popularity: ): Consulting firm offering Depreciation Studies, Valuations and associated services including Expert Testimony, and its Depreciation/Valuation-Projection PC Software System v. 3.10 (DVS 3.10.)
Music Biz Events (Popularity: ): A directory for various music related events. Includes listings for artist showcase conventions, award shows, business conventions, equipment conventions and seminars, facility and ticketing conventions, and instrument clinics and workshops.
Hobby Star Marketing (Popularity: ): Company runs comic, SF, and anime conventions in Montreal, Toronto, and Boston. Information on upcoming conventions and pictures from past conventions. Located in Toronto.
Car Depreciation Gap Insurance (Popularity: ): Car Depreciation Insurance.co.uk is part of the Future45 Ltd group of companies which includes Click4Gap.co.uk, Click4warranty.co.uk and Cargapinsurance.co.uk. Like our sister sites we are not a broker. Together with our specialist UK motor related insurance partner, Red Sands Insurance Company (Europe) Ltd, we design bespoke policies for the discriminating online buyer who is looking for quality, value, protection and service.
Science Fiction Conventions Northwest (Popularity: ): Information about conventions, resources for writers, and links to fannish clubs and organizations.
OSFCI (Oregon Science Fiction Conventions, Inc.) (Popularity: ): Portland area SF group, primarily for the purpose of running conventions.
SciFi Conventions (Popularity: ): Newsletter and listing of upcoming conventions.
Bridge Conventions (Popularity: ): Provides an encyclopaedia of conventions, systems and treatments.
Xoc Software (Popularity: ): Computer software and training. Includes Reddick VBA Naming Conventions and RVBA Coding Conventions.
Hague Conference on Private International Law (Popularity: ): Global inter-governmental organization that provides updated information on the Hague Conventions: text of the Conventions, full status reports, bibliographies, explanatory reports, etc.