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Mid-Month Convention Math for §1250 Building Depreciation

How the mid-month convention under IRC §168(d)(2) works for residential and nonresidential real property — with the (12.5 - month) / 12 formula and a worked Year-1 example.

Mid-Month Convention Math for §1250 Building Depreciation

What you'll learn. How to compute the year-1 depreciation deduction for a 27.5-year residential or 39-year nonresidential building under the mid-month convention prescribed by IRC §168(d)(2), the closed-form (12.5 - month) / 12 fraction, and how the leftover deduction lands in the truncated final year. The same formula drives the building_year1_fraction() function in our engine.

Why mid-month exists

The default placed-in-service rule for personal property under §168(d)(1) is the half-year convention — every asset is treated as placed in service in the middle of the year, so year-1 depreciation is half a year regardless of the actual month. That works for tangible personal property where the simplification cost is small.

For real property, Congress decided half-year was too coarse — a January acquisition and a December acquisition would get the same year-1 deduction under half-year, distorting end-of-year tax planning. IRC §168(d)(2) prescribes the mid-month convention for residential rental and nonresidential real property: the property is treated as placed in service on the 15th day of the month of actual placement.

The closed-form formula

If the property is placed in service in month m (1=January, 12=December), the year-1 deduction is the annual straight-line deduction multiplied by:

`` year1_fraction = (12.5 - m) / 12 ``

Worked values:

| Month placed | (12.5 - m) / 12 | Year-1 fraction | |---|---|---| | January (m=1) | 11.5 / 12 | 0.958 | | February (m=2) | 10.5 / 12 | 0.875 | | March (m=3) | 9.5 / 12 | 0.792 | | April (m=4) | 8.5 / 12 | 0.708 | | May (m=5) | 7.5 / 12 | 0.625 | | June (m=6) | 6.5 / 12 | 0.542 | | July (m=7) | 5.5 / 12 | 0.458 | | August (m=8) | 4.5 / 12 | 0.375 | | September (m=9) | 3.5 / 12 | 0.292 | | October (m=10) | 2.5 / 12 | 0.208 | | November (m=11) | 1.5 / 12 | 0.125 | | December (m=12) | 0.5 / 12 | 0.042 |

The intuition: a January acquisition is "in service" from mid-January through end of year — 11.5 months. A December acquisition is in service for 0.5 months. Linear interpolation between them.

Worked example — March acquisition

A residential rental purchased March 14, 2026 with a building basis of $400,000:

Years 2 through 27: full annual $14,545.45 each year.

The truncated final year

A 27.5-year recovery period under mid-month convention spans 28 calendar tax years (year of acquisition + 27 full years + a partial final year). The total depreciation must equal exactly the building basis. The leftover that did not run in year 1 lands in the truncated year-28 partial.

For the March example:

The cleaner framing: the building has exactly 27.5 years of life. The year-1 deduction consumes 0.7917 of a year. Years 2 through 27 consume 26.0 years. Cumulative consumed: 26.7917 years. Year 28 picks up the remaining 27.5 - 26.7917 = 0.7083 years worth of depreciation.

For our $400,000 building example, year 28 deduction is $14,545.45 × 0.7083 = $10,303. Total depreciation across 28 years: $11,515 + ($14,545.45 × 26) + $10,303 = $11,515 + $378,182 + $10,303 = $400,000. The pennies tie out.

This is exactly what the building_deduction() function does in our engine: year-1 returns annual × year1_fraction, years 2 through life-1 return annual, and the final partial year returns annual × (1 - year1_fraction).

Why this matters for cost-seg screening

The mid-month convention applies to the building portion only — the residual 27.5-year or 39-year basis after the 5-year, 7-year, and 15-year personal-property and land-improvement buckets are stripped out. The accelerable buckets follow the half-year convention under §168(d)(1) (or mid-quarter under §168(d)(3) when the Q4 trigger fires — see the mid-quarter convention walkthrough).

Year-1 deduction comparison for the same March 2026 acquisition:

The mid-month convention is worth noticing because a January acquisition produces a building deduction nearly 23x larger than a December acquisition ($14,545 × 0.958 = $13,934 vs. $14,545 × 0.042 = $611). For a December close that slipped past year-end, the building deduction is essentially zero in year 1 — the real estate decision and the depreciation decision are coupled.

Where the engine applies it

Our feasibility estimator collects purchase_month from the questionnaire and passes it directly into building_deduction(bldg_years, building_amt, 0, purchase_month) for year 1, and into building_deduction(... year_index, purchase_month) for years 2 through 28. The building_year1_fraction() helper clamps month to [1, 12] and falls back to half-year (0.5) for missing data — a defensive default that under-states rather than over-states the deduction.

Screen a 2026 acquisition with the actual purchase month →

Sources

Disclaimer. This tutorial describes general federal tax concepts. TaxProtestTx (Nought Labs LLC) is a feasibility-screening tool, not tax advice or a cost segregation study. Calculator output cannot be relied on under Treasury Circular 230. Consult a qualified CPA, EA, or attorney before filing. Results are not guaranteed.

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Disclaimer. This page describes general federal tax concepts. TaxProtestTx (Nought Labs LLC) is a feasibility-screening tool, not tax advice or a cost segregation study. The calculator output cannot be relied on under Treasury Circular 230. Consult a qualified CPA, EA, or attorney before filing. Results are not guaranteed.