Depreciation - Tax Depreciation - Averaging Conventions

Averaging Conventions

Depreciation calculations can become complex if done for each asset a business owns. Many systems therefore permit combining assets of a similar type acquired in the same year into a “pool.” Depreciation is then computed for all assets in the pool as a single calculation. Calculations for such pool must make assumptions regarding the date of acquisition. The United States system allows a taxpayer to use a half year convention for personal property or mid-month convention for real property. Under such a convention, all property of a particular type is considered acquired at the midpoint of the acquisition period. One half of a full period depreciation is allowed in the acquisition period and in the final depreciation period. United States rules require a mid-quarter convention for personal property if more than 40% of the acquisitions for the year are in the final quarter.