Determining When to Use Midquarter Convention

How can I tell if I should use the midquarter convention?

One way to determine whether the midquarter convention applies is to run the Midquarter Applicability report before you execute the Depreciate command. If the report states that more than 40% of the aggregate basis of newly acquired qualifying MACRS property (generally, personal property) was placed in service in the last three months of the tax year, you need to select Edit Company from the File Menu, change the Book Override to Midquarter, and depreciate the assets. See Book Overrides Tab for details regarding the midquarter convention settings. If you've already calculated depreciation with incorrect midquarter convention settings, you will need to perform a MACRS Convention Switch. For more information, see Performing a MACRS Convention Switch.

Changes to the Book Overrides' settings have no effect on future depreciation calculations for the assets that have already been depreciated. The only exception is if you reset an asset's depreciation to the placed-in-service date and clear the MACRS convention setting in the Reset Depreciation window.

The midquarter convention is optional for the 2001 tax year if September 11, 2001 occurs in the third or fourth quarter of your fiscal year. Pursuant to IRS Notice 2001-70 and 2001-74, you can elect to use the half-year convention, even if more than 40% of the aggregate depreciable basis of newly acquired qualifying MACRS property was placed in service in the last three months of the tax year.

To make the half-year convention election when you would otherwise be required to use the midquarter convention, write "Election Pursuant to Notice 2001-70" across the top of Form 4562, Depreciation and Amortization. You can tell the system to write this text on the form when you complete the Form 4562 report definition window.