179 Error for Qualified Real Property

[leslie826]

I am using TurboTax download for Home & Business.  My accountant took Sec 179 for two remodels on my condos in the year put into service.  TurboTax is saying this is not correct because real property does not qualify.  Per IRS New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act | Internal ....  

FS-2018-9, April 2018

Businesses can immediately expense more under the new law

A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. For taxable years beginning after 2018, these amounts of $1 million and $2.5 million will be adjusted for inflation.

The new law also expands the definition of section 179 property to allow the taxpayer to elect to include the following improvements made to nonresidential real property after the date when the property was first placed in service:

• Qualified improvement property, which means any improvement to a building’s interior. However, improvements do not qualify if they are attributable to:
  • the enlargement of the building,
  • any elevator or escalator or
  • the internal structural framework of the building.
• Roofs, HVAC, fire protection systems, alarm systems and security systems.

These changes apply to property placed in service in taxable years beginning after Dec. 31, 2017.

How do I get TurboTax to stop giving me the error "Section 179 should be blank.  A Section 179 deduction is not allowed on real property"?

[AmeliesUncle]

---

@leslie826 wrote:

took Sec 179 for two remodels on my condos

The new law also expands the definition of section 179 property to allow the taxpayer to elect to include the following improvements made to nonresidential real property after the date when the property was first placed in service:

• Qualified improvement property, which means any improvement to a building’s interior. However, improvements do not qualify if they are attributable to:
  • the enlargement of the building,
  • any elevator or escalator or
  • the internal structural framework of the building.
• Roofs, HVAC, fire protection systems, alarm systems and security systems.

---

If you re-read that, it only applies to Nonresidential property.  Are you "condos" nonresidential?

[leslie826]

@AmeliesUncle 

Since the condo is a vacation rental and it is rented by the week, I believe it would qualify as non-residential due to units being used on a "transient basis".  

Thanks!

[Rick19744]

The rules for Section 179 changed with the TCJA.

While personal property used in residential real estate is eligible for Section 179, in order to qualify, the residential real estate MUST be used in a trade or business.

 Whether your vacation rental qualifies as a trade or business is a question of facts and circumstances.  I would have hoped that your prior accountant went over this with you and has this documented.  I would ask for a copy of the notes or discussions that supported the trade or business position.

If you are comfortable that your vacation rental is in fact a trade or business, I believe TT needs to understand this.  There must be a question related to whether or not the rental is a trade or business and the default is most likely "no", since in general rental real estate is not a trade or business.

I would recommend going back through the questions.

If the rental is just an investment, then it would not be eligible for Section 179.