Do we have to depreciate our shed asset for LLC partnership or can we use section 179 deduction?

[lularoechrisandk]

My sister and I started an LLC partnership in 2017 to run our clothing business.  We built a shed in her backyard that is used 100% for the business.  Do we have to depreciate the cost over the course of 27.5 years or can we elect the section 179 deduction for this asset?  We only spent around $5,000 to build it.

[JulieH1 · Accepted solution]

It depends.

The issue boils down to is the shed a "structure" or a "building."

I could not specifically find a shed for a clothing business in IRS cases, but I did find plenty of them with reference to farms and dog breeding businesses.  If the shed is a structure that is not permanent in nature then you can use the 179 deductions under personal property.   

If the shed is a "building" then it is real property and does not qualify for the Section 179 Deduction. Real Property is typically defined as land, buildings, permanent structures and the components of the permanent structures (including improvements). Other examples of property that would not qualify for the Section 179 Deduction include paved parking areas and fences.

As you can see it depends on the facts of your situation.  If you use the 179, just keep your receipts to show the inexpensive nature of the shed if you ever get audited you can make your case that it's a structure:) 

[Davejoseph84]

Can I ask a follow-up question? I work as a handyman and priced out a shed and a "metal building" for me to perform my work in. The metal building is basically an erector set on site and is attached to the ground with mobile home anchors. These buildings can be unbolted and moved from location to location, it is done very regularly with this company. They are installing it for me but if I ever move they will uninstall it and move it to the new location for me. Would this qualify under 179? Especially since it's cheaper than the shed? The shed was going to cost me $6,000, the"metal building" cost $5400.

[Ashli Rouw]

My client is a handyman as well. I would say that metal structure sounds like it is NOT permanent. Permanent is more like the foundation of the structure is solid and would take active construction to move/remove the structure. Think barn like the person said above. A barn is an immense job to remove/move. Anything that you would simply unbolt a few anchors/clips like those storage pod items would be temporary IMO. I hope this helps. 

[Anonymous]

rather than 179 which is limited to business income and can present some issues if disposed of before the end of its depreciable life, I would take 100% bonus depreciation. you get the same tax deduction for the cost, but it is not limited to business income and not subject to depreciation recapture unless sold.  the issue I see is exactly what class these items fall into. if the IRS were to say they're land improvements 179 would not be allowed.  but bonus would. 

[quin1]

This helps me with my questions as well, so thank you! I'm wondering if my shed built to hold/store tools for my excavation business. I built it, and I built it to be able to move it. No foundation etc. I feel I am able to take the section 179, but wondering which area in turbo tax (general equipment, area or "other property") I'm assuming the general equipment area, but wanted another opinion. Thanks again!

[quin1]

When I go to choose whether or not to take the 100% full 179 deduction, there is the option underneath for 100% depreciation. What is the difference and how would I choose between the two? The shed is/was always used for the business. I built it, with intent to be able to move it when need be.  Thanks for your time!!

[Vanessa A]

If you take the 100% deduction this year, it will lower your net profit. If you had a profitable year, this would help reduce your taxes this year. 

If you don't take the 100%, then you would take a portion of the cost of the shed and deduct it every year until it was fully depreciated. This will give you a smaller tax break for more years instead of a larger one this year.