 Most of this information comes from Publication 946, how to depreciate property tax year 2022. You can find on the IRS website, irs.gov, irs.gov. Looking at the income tax formula focused online, one income, remember in the first half of the income tax formula is an essence and income statement, but just an outline other forms and schedules flowing into these line items, one being the schedule C, having business income minus business expenses the net business income from the schedule C flowing into line one income of our income tax formula. The form 1040 noting that we have the schedule C which would flow into the schedule one then flow into page one form 1040 line number eight. The schedule C is the profit or loss from business income statement format income minus expenses were focused on the expenses more specifically on depreciation remembering even if on a cash-based system you're gonna have to do the accrual concept thing if you have depreciable property putting it on the books and then depreciating the property over the useful life needing to coincide with the categorizations and periods of depreciation provided by the tax code which may differ from accounting concepts and accounting theory as well as regulations like generally accepted accounting principles. Our general objective is to try to depreciate as much as we can as early as we can because that will give us the best tax benefit that's a different objective than we normally have for normal accounting. That said, we're continuing on with our discussion of maker's depreciation. So which convention applies? So now we talked about the type of property that number of years we have to depreciate over now we're gonna get into conventions. Now remember the first thing you wanna think about is just a normal depreciation straight line depreciation because conceptually that makes sense. It's easy to kind of graft on to conceptual framework of a straight line depreciation where we take the depreciable property we decide how long we're gonna depreciate it over divide the cost by that number of years and then simply depreciate an even amount over that timeframe. However, we can then differentiate from that. We might then want double declining kind of balance meaning we're gonna depreciate in some way more upfront than in latter years. And that could be beneficial from tax standpoint and makes sense from a bookkeeping standpoint because we might have property that we actually have more benefit from in the early years and then until the later years. And then we might have other things that don't really coincide to bookkeeping concepts but rather our tax concepts like a 179 deduction and special depreciation. Then we can also ask, well, what happens if I buy the property in the middle of the year? Cause obviously I'm not gonna buy it on January 1st what are there any kind of conventions that we might be able to use? For example, might we just assume that it was bought in the middle of the year that would make it easier for a calculation to be taken rather than taking like the number of days in a year and using some kind of ratio analysis to do this calculation. All right, so under makers average conventions established when the recovery period begins and ends. So the convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year to dispose of the property. So you've got the mid month convention which is sounds, it is in essence what it sounds like. So use this convention for non-residential real property residential rental property and any railroad grading or tunnel bore. So what does that mean? That means for these types of property you're gonna not say that I bought it on January or let's say February 3rd. You're gonna say that you bought it in the middle of February, right? Right in the middle of the month. It's a mid month convention which makes it slightly easier to calculate than if you're trying to break out, you know, each day for the calculation. Okay, and then we've got under this convention you treat all property placed in service or disposed of during a month as placed in service or disposed of at the mid point of the month, the middle of the month, this purchased or disposed of when you get rid of it or sell it or whatever you do at dispose of it. This means that a one half month of depreciation is allowed for the month the property is placed in service or disposed of. Notice these are for the mid month is for the big items, the real estate kind of items, non-residential real property, residential real property and any railroad grading because you're talking about big dollar amounts, the amount of depreciation for a month can be fairly significant which is why you're not using like a mid quarter convention which would even be easier to calculate or a mid year convention but they're doing the mid month convention. So your use of the mid month convention is indicated by the MM, that's the label for it. So if you see that MM on depreciation schedules from tax software, that's what it's indicating already showing under column E in part three a form 4562.