Half-Year Convention

Under the half-year convention, you treat an asset as though you placed it in service or disposed of it on July 1 (or on the first day of the seventh month of the fiscal year). One-half of a full year's depreciation is allowed for the asset in its first year placed in service, regardless of when you actually placed it in service during that year.

If you dispose of an asset in its final year, the amount of depreciation depends on when it is disposed. If the asset is disposed of before the midpoint of the year, it receives one half of the depreciation it would have received if it had not been disposed. The asset will not be fully depreciated. If the asset is disposed of on or after the midpoint of the year, it receives the full amount of depreciation for its final year.

Under earlier legislation, personal property placed in service before 1987 and depreciated under the ACRS tables used the half-year convention in the year of acquisition. Such personal property was entitled to no depreciation in the year you disposed of it. The MACRS rules of the 1986 Tax Reform Act keep the half-year averaging in the year of acquisition, but they also generally allow for a half-year of depreciation in the year of disposition.

Note: The half-year convention can be used for all MACRS property except residential rental and nonresidential real property. It is used for MACRS 3-, 5-, 7-, 10-, 15-, 20-, and 25-year property (unless the midquarter convention applies).