When completing Form 4562, the "Convention" refers to the method used to determine the portion of the tax year for which depreciation is allowed when property is placed in service or disposed of. The convention applied depends on the type of property and the timing of its placement in service. The three main conventions are: half-year (HY), mid-month (MM), and mid-quarter (MQ).
Conventions by Property Type
- Half-year convention (HY): Applies to most personal property (lines 19a–19h) unless the mid-quarter convention applies. It treats all property placed in service during the tax year as placed in service at the midpoint of the year. Enter "HY" in column (e).
- Mid-month convention (MM): Applies only to residential rental property (line 19i), nonresidential real property (line 19j), and railroad gradings and tunnel bores. It treats property as placed in service at the midpoint of the month. Enter "MM" in column (e).
- Mid-quarter convention (MQ): Applies if more than 40% of the total depreciable basis of MACRS property placed in service during the last three months of the tax year exceeds the total for the entire year. It treats property as placed in service at the midpoint of the quarter. Enter "MQ" in column (e). Note: This does not apply to real property or property placed in service and disposed of in the same tax year.
Special Rules for Listed Property
- Listed property includes automobiles, certain vehicles, aircraft, and property used for entertainment, recreation, or amusement.
- For Part V, Column (g) — Method/convention: Enter the depreciation method (200 DB, 150 DB, or S/L) and convention (HY, MM, or MQ).
- Special rules apply if property was acquired via trade-in; refer to Regulations section 1.168(i)-6(d)(3) for details.
Source:
Form 4562 Instructions
Disclaimer: Always verify details with current Federal or State Department of Revenue Forms and Instructions. Tax rules may vary based on individual circumstances and jurisdiction.