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.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

References in periodicals archive ?

179 and is able to use the modified accelerated cost recovery system (MACRS) with the half-year convention. There are no other assets purchased in 1991.

Expensing depreciable assets; proposed Sec. 179 regulations clarify recent tax act changes

In Year 1, taking into account the half-year convention, 5% of the land improvement cost will be recovered; the recovery percentage for the nonresidential depreciable real property will be approximately 1.8162%.

Cost recovery issues involving the acquisition of open-air and prefabricated structures

Generally, for most tangible personal property, the applicable convention is the half-year convention. By applying the half-year convention, a taxpayer treats all property placed in service during any tax year as placed in service on the midpoint of that tax year.

Post-deal depreciation: impact of certain nonrecognition transactions

Some depreciation systems use a half-year convention; you only take 50% of the depreciation in year 1 and then take the other half of the year's depreciation in year n+1 of the useful life.

Calculating depreciation in Excel

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.

Additional depreciation. (New Rules for Business)

Under the existing law, using the half-year convention, the asset's 2002 depreciation is $20,000.

Ready, set, depreciate: Highlights from the 2002 tax act

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.

Depreciation computations made easy

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.

Accounting for the costs of package designs

The property cost $1,000 and is a five-year property subject to the half-year convention. The amount of additional first-year depreciation allowed under the new law is $500.

Economic Stimulus Act of 2008; Analysis of major provisions

44 illustrates the alternative approaches for calculating depreciation for both five-year and seven-year MACRS properties, using an asset with an original unadjusted basis of $10,000 and assuming the half-year convention applies.

Calculating depreciation on a like-kind exchange or an involuntary conversion: temporary regulations have modified the rules for computing depreciation on exchanged or converted property. This article focuses on the use of the optional tables for like-kind exchanges and involuntary conversions

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.