Definition of Mid-Month Convention
In depreciation, the mid-month convention means that an asset placed into service anytime during a given month is assumed to have been placed into service in the middle of that month. As a result, there will be one-half month of depreciation in that month.
The same is true for the disposal of an asset. There will be one-half month of depreciation in the month of the disposal.
The mid-month convention is pertinent for the income tax depreciation for certain property. You can find more on this in the Internal Revenue Service Publication 946.
Examples of Mid-Month Convention
Under the mid-month convention, if a company put a warehouse into service on October 6, it is assumed that the warehouse was put into service in the middle of October and there should be one-half month of depreciation in October.
If a building is placed into service on October 23, it is assumed that the building was put into service in the middle of October. This also means there should be one-half month of depreciation for October.
If a company disposes of an asset on October 25, it is assumed to have been disposed of in the middle of October and one-half month of depreciation is taken for October.
If an asset is disposed of on October 3, it is also assumed that the asset was disposed of in the middle of October and one-half month of depreciation is taken for October.
