S 179 Deduction for 2020 Personal Residential Rental Property

[DonMorgen]

I'm using TT Deluxe 2020 for Mac

I had significant S 179 expenditures, but TT isn't allowing the deduction because it shows on line 11 of form 4562 that I have zero Business (Schedule E) income. This is inaccurate as I have more income than S 179 deductions.

In fact my QBID calculation shows my Schedule E income that reflects the proper S179 deduction.

What am I doing wrong?

don

[tagteam · Accepted solution]

You might want to contact Support for this issue (link below).

What is the TurboTax phone number? (intuit.com)

If you enter Forms Mode, highlight Line 11 of Form 4562, and double-click on that line, you will see the Depreciation Options form where you can manually enter taxable income computed for the Section 179 limitation. However, I would be hesitant to recommend that approach and would contact Support before doing so.

[Mike9241]

it's likely that many of the improvements made to Residential Real Property do not qualify for section 179

here's a link to PUB 946 which provides info on qualified property 

https://www.irs.gov/pub/irs-pdf/p946.pdf 

from IRC code section 179

(e)Qualified real property
For purposes of this section, the term “qualified real property” means—
(1)any qualified improvement property described in section 168(e)(6), and
(2)any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service:
(A)Roofs.
(B)Heating, ventilation, and air-conditioning property.
(C)Fire protection and alarm systems.
(D)Security systems.

IRC section 168(e)(6)

(6)Qualified improvement property
(A)In general
The term “qualified improvement property” means any improvement made by the taxpayer to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service.

(B)Certain improvements not included
Such term shall not include any improvement for which the expenditure is attributable to—
(i)the enlargement of the building,
(ii)any elevator or escalator, or
(iii)the internal structural framework of the building.

[RayW7]

The above answer is correct but the following information may be helpful.

If Section 179 does not meet your needs you might consider the De Minimis Safe Harbor as an alternative for taking the Section 179 deduction. 

Typically, you must capitalize and depreciate capital improvements. But the de minimis safe harbor allows you to make an annual election to immediately deduct tangible property  under a certain dollar threshold.

If you have an applicable financial statement (AFS), usually an audited financial statement, the de minimis safe harbor threshold is $5,000. However, for most of us without an AFS, the threshold is currently $2,500.

When you purchase tangible property to use in your investment real estate, the cost comes out of pocket today. And as an investor, you want to immediately deduct as many expenses as you can in order to reduce your net income, and thus taxable income.

The de minimis safe harbor allows you to save thousands in taxes by immediately deducting tangible property under $2,500 that would normally be capitalized and depreciated over many years.  This ultimately reduces your taxable income.

For more information go to the IRS "Tangible Property Regulations - Frequently Asked Questions" at the following link:  https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations#Ad...

[AmeliesUncle]

Section 179 is only allowed for a "trade or business".  If rental does not rise to the level of a "trade or business", then Section 179 is not allowed.

TurboTax incorrectly assumes all rentals do NOT rise to the level of a "trade or business" for this purpose.  If your rental DOES rise to that level, you need to enter/override Line 11 of Form 4562 (which can only be done using the CD/downloaded version, and will not allow you to e-file) to reflect your profit or loss from the rentals.