What is the mid-month convention in real estate depreciation?

The mid-month convention assumes the property was placed in service or disposed of at the midpoint of the month, regardless of the actual date. This means only half a month of depreciation is allowed for the month the property was placed in service.

How do you calculate annual depreciation for real estate?

Annual depreciation for a full year equals cost basis divided by recovery period. For example, a $300,000 property depreciated over 27.5 years has annual depreciation of $10,909.09. The first and last years are prorated using the mid-month convention.

Property Depreciation Calculator

Q: What is the cost basis for real estate depreciation?

The cost basis for depreciation is the purchase price of the property plus settlement costs, minus the value of the land. Land is never depreciated. Only the building and improvements are included in the depreciable cost basis.

Property Depreciation Calculator | Real Estate MACRS

Property Depreciation Calculator

Calculate real estate depreciation schedules using MACRS straight-line method with mid-month convention for IRS Form 4562.

Cost Basis

Recovery Period (Years)

Month Placed in Service

Year Placed in Service

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Depreciation Schedule

Real Estate Recovery Period Reference

Recovery periods for real estate depreciation are set by IRS MACRS rules. The most common periods for real estate investors are listed below.

Property Type	Recovery Period	Method	Convention
Residential Rental Property	27.5 years	Straight-Line	Mid-Month
Nonresidential Real Property (post May 1993)	39 years	Straight-Line	Mid-Month
Nonresidential Real Property (pre May 1993)	31.5 years	Straight-Line	Mid-Month
Qualified Improvement Property	15 years	Straight-Line	Half-Year
Land Improvements	15 years	150% DB	Half-Year
Residential Appliances	5 years	200% DB	Half-Year

How the Property Depreciation Calculator Works

The property depreciation calculator uses the MACRS straight-line method with mid-month convention to generate a complete year-by-year depreciation schedule. This matches the calculation method required for IRS Form 4562, lines 19 and 20.

What is Straight-Line Depreciation

Straight-line depreciation spreads the cost of a property evenly across its recovery period. A property costing $300,000 depreciated over 27.5 years generates $10,909.09 in annual depreciation expense during each full year of the schedule.

The Mid-Month Convention Explained

The mid-month convention applies to real estate under MACRS. It treats the property as placed in service at the midpoint of the month it was actually placed in service. This means the first and last years receive partial year depreciation regardless of the exact date of acquisition or disposal.

First Year Depreciation Formula

First year depreciation equals ((12 minus M plus 0.5) divided by 12) times (Cost divided by Life), where M is the month the property was placed in service. A property placed in service in January receives 11.5 months of depreciation in year one. A September acquisition receives 3.5 months.

Why Real Estate Has No Salvage Value

Under MACRS real estate rules, the entire cost basis is depreciated down to zero. There is no salvage value to subtract before calculating depreciation. This differs from personal property depreciation where a residual value is sometimes retained.

Residential vs Commercial Recovery Period

Residential rental property uses a 27.5 year recovery period. Commercial or nonresidential real property placed in service after May 12, 1993 uses a 39 year period. The longer commercial period results in lower annual depreciation deductions for the same cost basis.

Using This for IRS Form 4562

The depreciation schedule produced by this calculator corresponds to the values you report on IRS Form 4562, specifically lines 19 and 20 which cover MACRS real property. Always consult a tax professional for your specific situation as individual circumstances can affect the deductible amounts.

Frequently Asked Questions

Residential rental property is depreciated over 27.5 years under the MACRS straight-line method. This is the standard IRS recovery period for residential real estate placed in service after 1986.

Commercial real estate is depreciated over 39 years under MACRS straight-line method. This applies to office buildings, retail spaces, warehouses, and other nonresidential property placed in service after May 12, 1993.

The mid-month convention assumes the property was placed in service at the midpoint of the month regardless of the actual date. Only half a month of depreciation is allowed for the month the property was placed in service and the month it was disposed of.

Annual depreciation for a full year equals cost basis divided by recovery period. A $300,000 property depreciated over 27.5 years gives $10,909.09 per year. The first and last years are prorated using the mid-month convention.

The cost basis for depreciation is the purchase price plus settlement costs, minus the value of the land. Land is never depreciated. Only the building and improvements are included in the depreciable cost basis.