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Mid-Quarter Q4 Convention Math: When §168(d)(3) Kicks In

When mid-quarter convention applies to a single-property cost-seg, how Tables A-5 and A-6 differ from the half-year tables, and a worked Q4 example.

Mid-Quarter Q4 Convention Math: When §168(d)(3) Kicks In

What you'll learn. When the mid-quarter convention under IRC §168(d)(3) overrides the default half-year convention for the 5-year, 7-year, and 15-year accelerable buckets in a cost-seg study, the full Table A-5 (200% DB) and Table A-6 (150% DB) Q4 percentages, and a worked example showing the year-1 swing for an October vs. September acquisition. The same logic drives is_mid_quarter_q4() in the engine.

The §168(d)(3) trigger

The default placed-in-service convention for tangible personal property under §168(d)(1) is the half-year. IRC §168(d)(3) imposes the mid-quarter convention instead when:

The aggregate bases of property to which this section applies and which is placed in service during the last 3 months of the taxable year exceed 40 percent of the aggregate bases of all such property placed in service during such taxable year.

Read for a single-property cost segregation: every reclassified dollar of accelerable property is "placed in service" on the same day — the property's acquisition date. So 100% of the 5-year, 7-year, and 15-year basis hits the same month. If that month is in Q4 (October, November, or December), the >40% test trivially passes and mid-quarter applies. If that month is Q1, Q2, or Q3, no part of the basis is in Q4, the >40% test fails, and the half-year convention applies.

The trigger is all-or-nothing for a single-property study. No partial application. Multi-property taxpayers (e.g., a small fund placing five properties across three quarters) must aggregate to test §168(d)(3) — those facts are out of scope for this walkthrough.

Tables A-5 and A-6 (Q4 column)

IRS Publication 946 publishes the mid-quarter percentages in Tables A-2 (200% DB, 5-yr and 7-yr) and A-6 (150% DB, 15-yr). The Q4 column captures the dramatic compression — Q4 placement gives only half a month of year-1 depreciation (mid-November as the deemed placed-in-service date), so year-1 percentages collapse.

5-year property, 200% DB, Q4 mid-quarter:

| Year | HY (default) | MQ Q4 | |---|---|---| | 1 | 20.00% | 5.00% | | 2 | 32.00% | 38.00% | | 3 | 19.20% | 22.80% | | 4 | 11.52% | 13.68% | | 5 | 11.52% | 10.94% | | 6 | 5.76% | 9.58% |

7-year property, 200% DB, Q4 mid-quarter:

| Year | HY | MQ Q4 | |---|---|---| | 1 | 14.29% | 3.57% | | 2 | 24.49% | 27.55% | | 3 | 17.49% | 19.68% | | 4 | 12.49% | 14.06% | | 5 | 8.93% | 10.04% | | 6 | 8.92% | 8.73% | | 7 | 8.93% | 8.73% | | 8 | 4.46% | 7.64% |

15-year property, 150% DB, Q4 mid-quarter:

| Year | HY | MQ Q4 | |---|---|---| | 1 | 5.00% | 1.25% | | 2 | 9.50% | 9.88% | | 3 | 8.55% | 8.89% | | 4 | 7.70% | 8.00% | | 5 | 6.93% | 7.20% | | 6 | 6.23% | 6.48% |

The pattern: year-1 collapses to roughly 25% of the half-year rate, year-2 catches up partially, and the schedule rebalances over the recovery period. Total depreciation is identical — only the timing changes.

Worked example — September vs. October close

Same property: $750,000 STR (land $150,000, building $600,000), engineering study reclassifies $150,000 (5-year) and $48,000 (15-year). The taxpayer is choosing between closing September 28 vs. October 5. No bonus depreciation in this example to isolate the convention effect (assume the 5-yr/15-yr buckets are bonus-ineligible — e.g., used property acquired pre-2017 from a related party).

September close (Q3 — half-year convention applies)

October close (Q4 — mid-quarter applies)

The seven-day delay from late September to early October costs ~$8,931 of year-1 federal tax effect. Year 2 partially recovers: under MQ-Q4 the 5-year bucket gets 38% vs. half-year's 32%, so the year-2 catch-up adds back roughly $9,000 × 35% = $3,150. Net NPV cost of the seven-day timing slip at a 7% discount rate is roughly $5,800.

When bonus depreciation neutralizes mid-quarter

When 100% bonus applies (post-OBBBA acquisitions after Jan 19, 2025), the bonus deduction strips out the entire reclassifiable basis in year 1 regardless of convention. Mid-quarter convention only applies to the post-bonus residual, which is zero. So:

Mid-quarter convention only matters when bonus is partial (2024 was 60%, 2023 was 80%) or when the property is bonus-ineligible (used property from a related party under §179(d)(3), §1245 property acquired by inheritance, or pre-2017 acquisitions for a §481(a) lookback).

The §481(a) interaction

For a Form 3115 lookback on a property acquired in October 2024 (60% bonus year), the §481(a) catch-up math must apply mid-quarter percentages to the post-bonus residual:

Our _compute_481a() engine applies accel_convention = "MQ-Q4" if is_mid_quarter_q4(purchase_month) else "HY" and threads it through macrs_deduction() for every catch-up year. The MACRS_TABLES_MQ_Q4 dict in constants.py carries the Q4-column-only values because that's the only mid-quarter case the engine triggers.

Screen an October 2024 lookback with mid-quarter convention →

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.