Explain the use of the half year convention for MACRS deprecation for assets other than real estate and the exception to the half-year convention rule. Year of the acquisition Year of disposal Mid-quarter convention Solution An applicable convention, is an assumption about when property is placed into service. It is used to determine when property depreciation begins. There are three types of conventions. The first, the “half-year convention,” assumes that all property placed into service, or disposed of, during a taxable year was placed into service, or disposed of, at the midpoint of that year. The second, the “mid-month convention,” assumes that all property placed into service, or disposed of, during any month was placed into service, or disposed of, at the midpoint of that month. The third, the “mid-quarter convention,” assumes that all property placed into service, or disposed of, during any quarter of a taxable year was placed into service, or disposed of, at the midpoint of that quarter. Half-Year Convention This convention applies to all depreciable tangible personal property. Exemptions: Residential rental and non residential real property Property subject to mid-quarter convention Mid-quarter convention If more than 40% of the total basis of property is placed in service during the last three months of the tax year, the mid-quarter convention applies. Exemptions: Property that is being depreciated under a method other than MACRS..