Property Details - Convention - Form 4562
Form 4562, titled "Depreciation and Amortization," is used to report depreciation, amortization, and other related deductions for business property. One key component of this form is the Convention, which determines how the recovery period for property begins and affects the depreciation schedule.
What is a Convention?
A convention is a method used to determine the portion of a tax year during which property is considered to be in use for depreciation purposes. The most common convention used in Form 4562 is the Half-year convention, which assumes that property is placed in service or disposed of at the midpoint of the tax year, regardless of the actual date.
Types of Conventions
- Half-year convention: Applies to most tangible personal property. It assumes property is placed in service halfway through the year, allowing for half a year’s depreciation in the first year.
- Mid-month convention: Used for real property (such as buildings), assuming property is placed in service at the midpoint of the month.
- Mid-quarter convention: Applies to certain property placed in service during the last quarter of the tax year, if more than 40% of the total property is placed in service during that quarter.
How Convention Affects Depreciation
The convention impacts the depreciation deduction by determining the timing and amount of deductions allowed in the first and final years of the asset’s recovery period. For example, under the half-year convention, you can only claim half a year’s depreciation in the first year, even if you placed the asset in service at the beginning of the year.
Reporting on Form 4562
On Form 4562, you must specify the convention used for each asset. The instructions for Form 4562 (2025) provide detailed guidance on selecting the appropriate convention based on the type of property and when it was placed in service.
For assets under the General Depreciation System (GDS), Table A in Form 4562 outlines depreciation percentages based on recovery periods and conventions. For instance, for 5-year property under the half-year convention, the depreciation percentages are 20.00% in year 1, 32.00% in year 2, and so on.
Important Notes
- Do not use Form 4562 to claim deductions for energy-efficient commercial buildings under Section 179D. Use Form 7205 instead.
- For qualified production property (QPP), you must report the MACRS depreciation claimed on an attached statement labeled “QPP.”
- Line 23 of Form 4562 has been split into lines 23a and 23b to report basis attributable to interest costs and other capitalized costs under Section 263A.
Source:
Form 4562 - Depreciation and Amortization (2025)
Disclaimer: Always verify details with official Federal or State Department of Revenue Forms and Instructions.