When is the mid-month convention applied in MACRS?

The mid-month convention is applied in the Modified Accelerated Cost Recovery System (MACRS) for buildings because this convention recognizes that real property, such as buildings, is typically acquired and placed into service throughout the month. Instead of treating the acquisition date as the beginning of the depreciation period, the mid-month convention assumes that the property is placed in service at the midpoint of the month. This helps to simplify the calculation of depreciation over the useful life of the property, which is typically 27.5 years for residential rental property and 39 years for non-residential property.

This specific application is essential because it aligns the depreciation expense more accurately with the actual period the property is in use. In contrast, other types of assets like land improvements, office equipment, and automobiles utilize different conventions, such as the half-year convention, which assumes assets are in service for half of their service life, thus affecting their depreciation calculations differently.