When is property placed in service?

The short answer, and what it depends on

Publication 946 defines the date in one sentence: you place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity or a personal activity. Two things follow from that wording. The test is about readiness, not activity, so a machine sitting idle on the floor of your shop is in service if it could run tomorrow. And the test is about a specific use, so the date can differ for the same object depending on what you are doing with it. A home you live in was placed in service as a personal residence the day you moved in, which is why nothing about it was depreciable until you changed its use.

The date matters because it fixes three things at once: the tax year in which depreciation starts, the month or quarter that sets how much of a year you get in the first year, and whether the property counts toward the 40 percent mid-quarter test described below. Getting the year wrong is not a rounding error. It moves an entire deduction from one return to another and can change which averaging convention applies to everything else you bought that year.

The three examples the publication gives

The IRS illustrates the rule with three situations. In the first, a business machine is delivered last year but is not installed and operational until this year. It is placed in service this year. The publication adds the mirror image: had the machine been ready and available for use when it was delivered, it would have been placed in service last year even if you did not actually run it until this year. Installation is what matters when installation is needed to make the thing usable; delivery alone is not enough, and neither is a purchase order.

In the second, Sue Thorn buys a house in April to rent, makes several repairs and has it ready for rent on July 5, at which time she begins advertising it. The house is placed in service in July when it was ready and available for rent, and that is when she can begin to depreciate it. Note what does not count: the April closing date, and the weeks of repairs. Note also that she does not have to wait for a tenant to sign a lease, because ready and available is enough.

In the third, a building contractor buys a truck that must be modified with lifting equipment. The installation is finished and the truck is accepted on January 10 of the following year. The truck is placed in service on January 10, the date it was ready and available to do the job it was bought for. A purchase in one year with delivery in the next therefore shifts the first deduction a full year.

Property that changes from personal to business use

If you place property in service for a personal activity you cannot claim depreciation. If you later change it to a business or income-producing use, you place it in service in that new use on the date of the change and can begin depreciating from then. The publication’s example is a personal home converted to a rental: no depreciation was allowable while it was your home, but the year of conversion is the first year you can claim it. The depreciable amount in that case is not simply what you paid; it is the lesser of the property’s fair market value and your adjusted basis on the conversion date, a rule covered on the page about converting personal property to business use.

Idle property keeps depreciating

A temporary stop does not take property out of service. The publication says to continue claiming depreciation on property used in your business or for income production even if it is temporarily idle, and gives the example of a machine you stop using because of a temporary lack of a market for the product it makes. What ends depreciation is retirement: selling or exchanging the property, converting it to personal use, abandoning it, transferring it to a supplies or scrap account, or its destruction. Depreciation also ends when the cost has been fully recovered, meaning your section 179 deduction, the depreciation allowed or allowable, and any salvage value together equal your cost or investment in the property.

Why the month matters: a worked example

For real property the placed-in-service month sets the first-year deduction through the mid-month convention. Under that convention the property is treated as placed in service at the midpoint of the month, so you get one-half month of depreciation for the month it goes into service. The publication lists residential rental property at 27.5 years and nonresidential real property at 39 years.

Take a $100,000 residential rental building, not counting the land, that is ready and available for rent in July. A full year at 27.5 years is $100,000 divided by 27.5, or $3,636.36. July is the seventh month, so the building is treated as in service for 5.5 months of the first year: half a month for July plus August through December. The first-year deduction is $3,636.36 times 5.5 over 12, or $1,666.67. Had the same building been ready in January, the first-year deduction would be $3,636.36 times 11.5 over 12, or $3,484.85. The calculator above applies the same arithmetic. The IRS percentage tables in the publication remain the authority for the exact figures on a return; this formula shows where the table percentages come from and is meant for planning.

The same placed-in-service date feeds the mid-quarter test for personal property. If the total depreciable bases of MACRS property you placed in service in the last three months of the tax year exceed 40 percent of the total depreciable bases of all MACRS property you placed in service during the year, the mid-quarter convention applies instead of the half-year convention. A single piece of equipment that becomes ready in December can therefore change the first-year deduction on every other asset you bought that year. The basis counted for this test is reduced by amounts expensed under section 179 and by the personal-use part, but not by any special depreciation allowance.

Property that is placed in service and disposed of in the same year

The publication lists property placed in service and disposed of in the same year as excepted property that cannot be depreciated at all, so a delivery-and-resale inside twelve months does not generate a deduction. It is also excluded from the 40 percent mid-quarter test. For disposal in a later year, the convention you used determines how much of a year’s depreciation you take in the year of disposition. The publication’s mid-month example is a residential rental building sold on March 2, 2025: a full year of $3,636 is multiplied by 2.5 over 12 to give $757.50, because the month of disposition counts as one-half month.

Recording the date

Keep the evidence of readiness: the installation sign-off, the date you listed the unit for rent, the date the vehicle was delivered with its equipment installed. The date goes on Form 4562, which the publication says to file when you claim depreciation for property placed in service during the current year. If you later discover you used the wrong date, the publication treats a change in the placed-in-service date as a correction that can only be made on an amended return, not as an accounting method change.

Limits of this page

This page covers the general rule in Publication 946 for property you own. Leased property, property used partly for personal purposes and listed property such as vehicles add further conditions. See the related pages on whether land is depreciable and on how improvements are depreciated, and the rental property depreciation calculator for a full schedule.

Sources

• IRS Publication 946, How To Depreciate Property (2025): Chapter 1, When Does Depreciation Begin and End? (Placed in Service). Page last reviewed or updated by the IRS April 30, 2026. Read November 2, 2026.

Edition read: Publication 946 (2025), for use in preparing 2025 returns. Limits and percentages quoted are for 2025 unless a page says otherwise. For tax years beginning in 2025 the publication gives a section 179 limit of $2,500,000, reduced dollar for dollar once qualifying purchases exceed $4,000,000, and $31,300 for heavy sport utility vehicles. Its What’s New for 2026 section gives $2,560,000, a $4,090,000 purchase threshold and $32,000. For qualified property acquired and placed in service after January 19, 2025 the special depreciation allowance is 100 percent, with an election for 40 percent in the first tax year ending after that date; for qualified property acquired before January 20, 2025 and placed in service in 2025 it is 40 percent. Check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it. Marked for human review.