Mid-Month Convention: Calculation, Disposal, and Workarounds

The mid-month convention is the MACRS rule that treats real property placed in service any time during a calendar month as if it were placed in service exactly at the middle of that month. You get a half-month of depreciation for the placement month, full months for every month after, and the same half-month treatment in the month you eventually dispose of the property. It applies only to buildings and a few related asset classes, and because those assets depreciate over 27.5 or 39 years, the placement date shapes every year’s deduction that follows.

Which Assets Actually Use It

The convention is mandatory for three MACRS categories: residential rental property with a 27.5-year recovery period, nonresidential real property with a 39-year recovery period, and any railroad grading or tunnel bore. All three also use straight-line depreciation, which spreads cost evenly across the recovery period.¹

Everything else uses a different convention. Equipment, vehicles, furniture, and other personal property fall under the half-year or mid-quarter rules. If you’re depreciating a copier or a truck, you’re in the wrong article; the mid-month convention will not touch that return.

Qualified improvement property (interior improvements to a nonresidential building placed in service after the building itself) is technically 15-year property, but because it is an improvement to nonresidential real property the IRS still requires the mid-month convention and straight-line method.² In practice many owners never reach that calculation, because 100% bonus depreciation (restored by the One Big Beautiful Bill Act for property placed in service after January 19, 2025) lets them expense QIP entirely in year one.³

How to Calculate First-Year Depreciation

The convention only affects two years: the year the property is placed in service and the year it’s disposed of. Every year in between gets a full 12 months. The formula for the placement year is straightforward. Count the full months the property was in service after the placement month, add 0.5 for the placement month itself, and divide by 12. That’s your proration factor. Multiply it by what a full year of depreciation would be.

A full year of straight-line depreciation is roughly 2.564% of the depreciable basis for 39-year nonresidential property and roughly 3.636% for 27.5-year residential rental property.

Say you place a commercial building in service in March. April through December is 9 full months, plus 0.5 for March, giving 9.5 months. The proration factor is 9.5/12, or about 79.17%. Multiply the full-year percentage by 0.7917 to get the first-year deduction.²

The timing spread across a calendar year is dramatic. January placement gives a factor of 11.5/12 (about 95.83%). December placement gives 0.5/12 (about 4.17%).⁴ For a $1 million nonresidential building, that’s roughly a $24,570 first-year deduction versus roughly $1,070. Closing in late November instead of early January can swing your first-year write-off by tens of thousands.

Use the IRS Percentage Tables

You don’t have to do the arithmetic by hand. Publication 946 contains percentage tables with the mid-month proration already baked in. Table A-6 covers nonresidential real property; Table A-7a covers residential rental.² Find the row for the placement month, the column for the current recovery year, and multiply that percentage by depreciable basis. The result goes on Form 4562.⁵

Disposal Year

The same half-month rule runs in reverse on the way out. The property is treated as disposed of at the midpoint of the month of disposition. Sell a building in July and you get 6 full months (January through June) plus 0.5 for July, or 6.5 months. The proration factor is 6.5/12, about 54.17% of that year’s full depreciation.²

Publication 946 gives a worked example. A residential rental property is purchased in July 2023 for $100,000 (excluding land) and sold March 2, 2025. Full-year 2025 depreciation is $3,636 (the Table A-6 percentage for the seventh month of the third recovery year, applied to basis). Applying the mid-month convention for 2.5 months of use in 2025 (January, February, and half of March), the final-year deduction is $3,636 × 2.5/12 = $757.50.²

Short Tax Years

If your tax year runs less than 12 months (a new business, a fiscal-year change, an S corporation converting from C status), you can’t use the standard percentage tables directly. Calculate depreciation as if you had a full 12-month year, then multiply by a fraction: the months the property was in service during the short year (including the mid-month half) over 12.²

The half-month rule itself doesn’t change. If you place a building in service in October and your short tax year runs October through December, the numerator is 2.5 (half of October plus November and December), divided by 12.

Ways to Accelerate Around It

Straight-line over 27.5 or 39 years is a slow drip. Several provisions let you pull deductions forward.

Bonus Depreciation

The One Big Beautiful Bill Act restored 100% bonus depreciation for qualifying property placed in service after January 19, 2025.³ Bonus applies to property with a recovery period of 20 years or less. That covers QIP (15-year) and land improvements like fences, sidewalks, and parking lots (also 15-year).² When you expense 100% in year one, the mid-month convention becomes irrelevant for those components. The building shell itself (39-year or 27.5-year) does not qualify for bonus and stays on mid-month straight-line.

Section 179

Section 179 lets you deduct the full cost of certain property in the placement year rather than depreciating it. For real property, the election is available for improvements to nonresidential buildings, including roofs, HVAC, fire protection, security systems, and qualified improvement property. The annual deduction cap is adjusted for inflation. Residential rental property improvements generally do not qualify.

Cost Segregation

A cost segregation study is an engineering analysis that breaks a building into its individual components and reclassifies items that don’t need a 27.5- or 39-year life. Decorative finishes, specialized electrical wiring, exterior paving, and similar items often become 5-, 7-, or 15-year property. Those pieces then become bonus-eligible, potentially deductible in full the first year. A well-executed study can move 20% to 40% of a building’s cost out of the 39-year class entirely.

Studies typically cost several thousand dollars for straightforward properties and more for complex ones. The math usually favors properties with at least around $500,000 in depreciable basis, though smaller properties can work when the reclassifiable share is high.

If You Used the Wrong Convention

Applying the wrong convention (say, half-year on a building) is treated as an impermissible depreciation method. To fix it, file Form 3115 (Application for Change in Accounting Method) under Designated Change Number 7, which covers changes from an impermissible depreciation method to a permissible one.⁶ This qualifies as an automatic method change, so IRS approval is not required in advance.

The correction produces a Section 481(a) adjustment: the cumulative difference between the depreciation you claimed and what you should have claimed for all prior years. If you under-deducted (typical when the wrong convention was applied to real property), the adjustment is negative and you deduct the entire catch-up amount in the year of change. You don’t amend prior returns. The single adjustment is the mechanism the IRS uses to make you whole without reopening closed years.

1
Office of the Law Revision Counsel. 26 USC 168 – Accelerated Cost Recovery System
2
Internal Revenue Service. Publication 946 (2025), How To Depreciate Property
3
Internal Revenue Service. One, Big, Beautiful Bill Provisions
4
Internal Revenue Service. 2025 Instructions for Form 4562 – Depreciation and Amortization
5
Internal Revenue Service. About Form 4562, Depreciation and Amortization
6
Internal Revenue Service. Instructions for Form 3115