Why the Placed-in-Service Date Matters
In real estate and business asset planning, the placed-in-service date can be one of the most important details in the depreciation file. Under Section 168, depreciation for tangible property is generally determined using the applicable depreciation method, recovery period, and convention, so the timing of when property is placed in service affects how depreciation is calculated.
The Date Can Affect the Recovery Period
The placed-in-service date matters because depreciation deductions depend on the rules that apply to the asset when it begins its depreciable life. Section 168 provides recovery periods for different classes of property, including 27.5 years for residential rental property and 39 years for nonresidential real property.
The Date Can Affect the Depreciation Convention
The placed-in-service date also determines which convention applies. Section 168 generally uses the half-year convention, but residential rental property and nonresidential real property use the mid-month convention.
Under the mid-month convention, property placed in service during a month is treated as placed in service at the midpoint of that month. That can affect the first-year depreciation amount, especially for real estate acquired or improved late in the year.
Improvements Need Their Own Timing Review
Placed-in-service timing is also important for additions and improvements. Section 168 provides that depreciation for an addition or improvement is computed as if the underlying property had been placed in service at the same time as the addition or improvement, and the recovery period for the addition or improvement begins on the later of the date the addition or improvement is placed in service or the date the underlying property is placed in service.
For real estate owners, this means improvements should not automatically be treated as placed in service on the same date as the building. The improvement’s own completion and availability for use can matter for depreciation timing.
Bonus Depreciation Makes Timing Even More Important
Placed-in-service timing is especially important under bonus depreciation rules. Section 168(k) provides an additional first-year depreciation allowance for qualified property, and current statutory text provides a 100% allowance for qualified property under Section 168(k)(1) .
Qualified property generally includes property with a recovery period of 20 years or less, certain computer software, water utility property, qualified film or television productions, qualified live theatrical productions, and qualified sound recording productions, if the other statutory requirements are met.
2025 Planning Point
OBBBA changed Section 168(k) by replacing the prior “applicable percentage” concept with 100% bonus depreciation and striking former phase-down provisions in Section 168(k)(6) and Section 168(k)(8) .
OBBBA also added a special election for qualified property placed in service during the first taxable year ending after January 19, 2025. If elected, Section 168(k)(10) applies a 40% allowance for most qualified property and a 60% allowance for certain longer-production-period property and certain aircraft, rather than the general 100% allowance.
Practical Recordkeeping Focus
Real estate owners should keep records that support when property or improvements were actually placed in service. The date can affect the recovery period, convention, first-year depreciation amount, and potential eligibility for additional first-year depreciation.
Key Takeaway
The placed-in-service date is more than an administrative detail. It can determine when depreciation starts, which convention applies, which recovery period is used, and whether enhanced depreciation benefits may be available
