If more than 40% of the aggregate depreciable basis of MACRS personal property placed in service in the year went into service in the last three months, every asset placed in service that year uses the mid-quarter convention instead of the half-year convention. The test is run once per year, per taxpayer, on basis after section 179 and before bonus.
The test: more than 40% of the year's basis in the last three months.
Under section 168(d)(3), if the aggregate basis of property placed in service during the last three months of the taxable year exceeds 40% of the aggregate basis of all property placed in service during the year, every asset placed in service that year uses the mid-quarter convention instead of the half-year convention. Publication 946 sets the terms: the test excludes nonresidential real property, residential rental property, railroad gradings and tunnel bores, and property placed in service and disposed of in the same year; the basis counted is after any section 179 deduction and before bonus depreciation. The test is run once, per taxpayer, per year, and its result applies to all of that year's additions, not just the fourth quarter's.
What the convention does.
The half-year convention treats every addition as placed in service at mid-year and allows half a year's depreciation. The mid-quarter convention treats each addition as placed in service at the middle of its quarter: an asset from the first quarter gets ten and a half months in year one, an asset from the fourth quarter gets a month and a half. The IRS tables build this in.
| Recovery period | Convention | Year 1 | Year 2 | Year 3 | Year 4 |
|---|---|---|---|---|---|
| 5-year | Half-year (Table A-1) | 20.00 | 32.00 | 19.20 | 11.52 |
| 5-year | Mid-quarter, first quarter (Table A-2) | 35.00 | 26.00 | 15.60 | 11.01 |
| 5-year | Mid-quarter, fourth quarter (Table A-5) | 5.00 | 38.00 | 22.80 | 13.68 |
| 7-year | Half-year (Table A-1) | 14.29 | 24.49 | 17.49 | 12.49 |
| 7-year | Mid-quarter, first quarter (Table A-2) | 25.00 | 21.43 | 15.31 | 10.93 |
| 7-year | Mid-quarter, fourth quarter (Table A-5) | 3.57 | 27.55 | 19.68 | 14.06 |
| Placed in service | Property | Basis | Half-year, year 1 | Mid-quarter, year 1 |
|---|---|---|---|---|
| First quarter | Machining centre, 7-year | 150,000.00 | 21,435.00 | 37,500.00 |
| Second quarter | Trucks, 5-year | 80,000.00 | 16,000.00 | 20,000.00 |
| Third quarter | Packaging line, 7-year | 70,000.00 | 10,003.00 | 7,497.00 |
| Fourth quarter | Servers, 5-year | 201,000.00 | 40,200.00 | 10,050.00 |
| Total; fourth-quarter share 201,000 of 501,000, or 40.1% | 501,000.00 | 87,638.00 | 75,047.00 | |
Bonus depreciation changes what is at stake, not the test.
For property acquired after 19 January 2025 and taking 100% bonus, the whole basis is recovered in the first year and the convention has no effect on that asset. The test still counts that asset's basis, and the result still governs the property that is not taking bonus: classes elected out, used property acquired from a related party, listed property below 50% business use, and property still on the phase-down. It also governs the year of disposal: an asset disposed of under the mid-quarter convention gets the fraction of the year to the middle of the quarter of disposal. The bonus depreciation article covers the acquisition-date rule that decides which assets still take the phase-down rate.
What to record on the asset.
- The placed-in-service date, so the quarter is known; a date in the wrong quarter changes the year for every asset.
- The basis after section 179 and before bonus, which is what the test counts.
- Property placed in service and disposed of in the same year, flagged so it is excluded.
- The convention the test produced for the year, stored on each asset, because it governs the asset's whole life and its year of disposal.
- Real property, kept out of the test and on the mid-month convention.
In Fixed Asset Desk: the 40% test runs at the period run across the year's additions, shows its arithmetic, and recalculates every asset placed in service in the year on the mid-quarter tables if it is met; nothing posts until the result is reviewed.
Sources: Internal Revenue Code section 168(d)(3) and (d)(4); Publication 946 (2025), chapter 4 (which convention applies) and Appendix A, Tables A-1 to A-5. Checked 20 September 2026.