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Calculate Year 1 depreciation when the "40% Rule" makes you use the Mid-Quarter charts.
The mid-quarter convention applies for an entire tax year if — and only if — more than 40% of the aggregate depreciable basis of all personal property placed in service during that year was placed in service during the fourth quarter (October, November, December for calendar-year taxpayers). To run the 40% test, sum the depreciable bases of all personal property assets placed in service during the year, then calculate Q4's share. If Q4 assets total more than 40% of that sum, every personal property asset placed in service that year — not just Q4 assets — uses the mid-quarter convention instead of the half-year convention.
A concrete example: a business places $150,000 in Q1 equipment, $80,000 in Q2, $70,000 in Q3, and $130,000 in Q4 for a total of $430,000. Q4's share is $130,000 ÷ $430,000 = 30.2% — below 40%, so half-year convention applies to all assets. If Q4 acquisitions were instead $200,000 (total: $500,000), Q4 share = 40.0% — the test uses "more than 40%" so 40.0% exactly does not trigger mid-quarter. At $201,000 Q4 (40.1%), mid-quarter is triggered and every asset — including the Q1 through Q3 acquisitions — must use the mid-quarter tables.
When mid-quarter applies, the IRS provides separate depreciation percentage tables for each quarter. For 5-year property, the year-one rates are: Q1 = 35.00%, Q2 = 25.00%, Q3 = 15.00%, Q4 = 5.00%. These percentages reflect the midpoint of each quarter: Q1 midpoint is February 15 (10.5 months remaining in the year), Q2 midpoint is May 15 (7.5 months), Q3 midpoint is August 15 (4.5 months), and Q4 midpoint is November 15 (1.5 months). A $200,000 piece of Q1 equipment under mid-quarter earns $70,000 in year one (35%), while the same equipment placed in service in Q4 earns only $10,000 (5%) — a $60,000 difference in first-year deductions driven purely by the timing of a single purchase. Q1 mid-quarter rates actually exceed the half-year convention's 20% rate, creating a planning opportunity for businesses willing to front-load acquisitions into the first quarter.
Businesses that realize in Q4 that they are approaching the 40% threshold have two basic options: accelerate remaining year-end purchases to push Q4 percentage above 40% and strategically work with the mid-quarter tables, or defer Q4 purchases into January to keep Q4 share below 40% and preserve the half-year convention. The right answer depends on the composition of assets. If the company's largest Q4 acquisition is equipment placed in Q1–Q3 was small, mid-quarter may actually benefit Q1 through Q3 assets (which receive more than half-year convention's 20%) while penalizing only the Q4 items. A tax projection that runs both scenarios — comparing the present value of deductions under half-year versus mid-quarter — should inform the decision rather than a simple rule of thumb. The projection becomes especially important when bonus depreciation is also in play, since bonus depreciation effectively wipes out the convention difference for assets to which it applies.