Certain property is subject to
depreciation. Depreciation allows one to
deduct a certain amount of the value or
basis of depreciable property per taxable
year. A person with depreciable property
must know when to start depreciating his/her
property. The tax code explains how to do
this through, what is called, the applicable
convention.
In tax accounting the half-year
convention is the default applicable
convention used for federal income tax
purposes. Like other conventions, the
half-year convention affects the
depreciation deduction computation in the
year in which the property is placed into
service. Using the half-year convention, a
taxpayer claims a half of a year's
depreciation for the first taxable year,
regardless of when the property was actually
put into service. It is assumed that the
property being depreciated was placed into
service at the mid-point of the year. To
compensate for this computation, the
taxpayer is entitled to another half-year of
depreciation at the end of the normal
recovery period. § 168(d)(4) of the Federal
Income Tax Code defines half-year convention
as a convention which treats all property
placed in service during any taxable year
(or disposed of during any taxable year) as
placed in service (or disposed of) on the
mid-point of such taxable year.
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