Which convention does MACRS impose for first-year depreciation of equipment?

The correct answer is the half-year convention. Under the Modified Accelerated Cost Recovery System (MACRS), the half-year convention is applied to most types of property. This means that when an asset is placed in service during the tax year, it is treated as if it was in service for half of that year, regardless of the specific month it was acquired. This convention simplifies the calculation of depreciation by allowing for a full year of depreciation to be claimed only if the asset is held for more than six months during that year.

This treatment is particularly significant for tax purposes, as it helps to spread out the depreciation deductions throughout the life of the asset, ensuring that taxpayers can benefit from accelerated depreciation without overly complicating their reporting requirements. In practice, this typically results in the first year's depreciation deduction being less than that of subsequent years, reflecting the half-year convention's structure.