Section 179 Deduction

[larsbruun-andersen1177]

I have a non-residential real estate business in which I materially participate in and qualify for the Qualified Business Income (QBI) deduction.  I installed in a new $10,000.00 HVAC system from one of the properties in 2019. Turbo Tax says I have carry forward the Section 179 deduction because it exceeds my ordinary business income.  I have no "ordinary business income" but have net rental estate income that exceeds the cost of the 179 property.  Can I deduct the $10,000.00 section 179 deduction in 2019 or do I have to use the 39.0 year MM SL depreciation method? Thanks!

[Critter]

Are you completing a Sch E or a Sch C  for this rental ???

[larsbruun-andersen1177]

The non-residential investment property is on Schedule E.

[Critter]

Did you indicate the rental was a qualifying business ? 

 

Section 179 Not Allowed on Rental Property

You cannot claim the section 179 deduction for property held to produce rental income. This would include any rental assets along with capital improvements.

However, the IRS does allow special qualified properties related only to nonresidential (i.e. Commercial) rental properties to take Section 179.

Qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property are allowed a Section 179 deduction, even if the properties relate to a Schedule E rental property, as long as the lessor considers the rental an active trade or business.

Per IRS Publication 946 How to Depreciate Property, page 16:

Property Acquired for Business Use

To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify.

For more information regarding depreciation please refer to the following publication:

IRS Publication 527 Residential Rental Property

[AmeliesUncle]

The last I checked, the program is faulty in this regard.  If the rental activity rises to the level of a "Trade or Business", the program incorrectly does NOT enter the business income on Form 4562.  You need to manually do that (Line 11?).

[larsbruun-andersen1177]

Can someone verify that "AmeliesUncle's" reply is correct in that Turbtax does not handle this situation correctly. Therefor, one must enter the profit, before the section 179 deduction, on Schedule E as business income on line 11 of Form 4562.

[melvin lang]

I added a structure on rental property and i want to use Secton 179 but turbotax does not let me mel

[GeorgeM777]

One reason why you may not be getting the Section 179 deduction is because of the business income limitation. This is how it works:

• The total qualified section 179 cost that can be deducted is limited to your taxable income from the active conduct of a trade or business during the year. This business income limitation is calculated on Form 4562, line 11.
• If the business income isn't large enough for the full section 179 expense amount to be deducted, a section 179 carryover is calculated on line 13.

If you are using TurboTax CD version or the TurboTax download version you can switch to the Forms mode (upper right side of your screen) and view the tax forms your return has generated.  Review Form 4562 and see if any of the above amounts have been generated.  

If you are using the TurboTax Online version, you will not be able to view Form 4562 until after you have completed your return in full and paid the TurboTax fee.  

[Lynn39]

If the K1 income rises to the level of a trade or business Turbo Tax Online should be using the amount in Box 2 of the K1 to properly calculate the allowable business amount to cap the Section 179 deduction.  As a real estate professional it is considered Business income per IRS guidelines.  Unable to adjust the 4562 using Turbo Tax Online.