Taxation Tidbit
Calculating or Avoiding the Mid-Quarter Convention
Parman R. Green, Univ. of Missouri Extension Ag Business Mgmt. Specialist
Most depreciable assets* a farmer acquires qualify for the “half-year depreciation convention”.
This convention provides that all qualifying property placed in service during the year is allowed
one-half year of depreciation, regardless of the date placed in service. An exception to this
convention is when more than 40% of the qualifying depreciable assets are placed in service
during the last three months of the tax year. If this exception applies, then all depreciable assets
that would normally be allowed half-year depreciation must instead be depreciated on the midquarter depreciation schedule. Thus, instead of depreciation being half of a full year’s
depreciation regardless of date of purchase, the percentage will be based on the quarter each
asset was placed in service:
First Quarter
87.5%
Second Quarter
62.5%
Third Quarter
37.5%
Fourth Quarter
12.5%
Assets on which the Section 179 expensing election (up to $102,000 for 2004) has been opted
are not included in the depreciable asset denominator and numerator. Thus the mid-quarter
convention can be circumvented by electing Section 179 on enough assets placed in service
during the last quarter to get below 40 percent.
* Depreciable assets excluded in this calculation are nonresidential real property, residential
rental property, and property placed in service and disposed in the same year.