half-year convention

Half-Year Convention

In accounting, the assumption that an asset is purchased at its value exactly half-way through the calendar year in which it is purchased. For example, if one buys an asset for $1,000 on January 1st and it is worth $1,200 at the end of the second quarter, the half-year convention would assume that it was bought for $1,200. This can affect taxes owed on the asset and the depreciation allowed each year. Obviously the half-year convention can have both positive and negative impacts, depending on the price movement of the asset.

half-year convention

The assumption for tax purposes that a newly acquired asset is placed in service halfway through the year regardless of when the asset is actually acquired and placed in service. The half-year convention affects annual depreciation, taxation, and earnings calculations.
References in periodicals archive ?
Generally, for most tangible personal property, the applicable convention is the half-year convention.
If you use a half-year convention, you would add a sixth year to the depreciation table, using =IF(OR(A6=1,A6>$B$3),0.
The property cost $1,000 and is a five-year property subject to the half-year convention.
Before the increase, a car needed to cost only $15,300 before the $3,060 first-year cap was triggered ($15,300 x 20%), assuming that the half-year convention applied.
Under the existing law, using the half-year convention, the asset's 2002 depreciation is $20,000.
The half-year convention is used under ACRS, meaning that personalty is depreciated for one-half of the year in which it is initially placed in service.
A half-year convention is used by treating all package designs incurred during the year as having been incurred on the midpoint of the tax year.
For example, for five-year MACRS property (assuming the half-year convention applies) acquired for $10,000 and placed in service in January 2001, the calculation for 2003 depreciation involved identifying the applicable rate from the table 6 for year 3 (0.
If the taxpayer chooses the assets to which it will allocate the [section] 179 amount, the taxpayer also can affect whether the mid-quarter convention or the half-year convention will apply to assets.
FIGURE 1 COMPARISON OF ANNUAL DEDUCTIONS UNDER ALTERNATIVE METHODS Method Year Pool of Cost (1) Design (2) 1 $ 1,250 $ 8,200 2 2,500 400 3 2,500 400 4 2,500 400 5 1,250 400 6 -- 200 $10,000 $10,000 (1) $10,000 amortized over 48 months utilizing the half-year convention for the year placed in service.
Had Q placed the radio tower in service in January 1996, it would have been subject to depreciation under the 150%-declining-balance method over a 15-year recovery period and a half-year convention.