As you may have heard, Section 179 deductions provide property owners with deductions of the cost of certain qualifying equipment. In recent years, the Federal Government has allowed advanced depreciation and expensing for capital purchases made for business purposes.
Section 179 does not increase the entire amount rental property owners can deduct, but it allows them to get their entire depreciation deduction in one year rather than receiving it a little at a time over the term of an asset’s useful life—which can be up to 39 years. This is called first-year expensing or Section 179 expensing. Read further to learn more about Section 179, including expensing, eligibility, and deduction limits.
Purchases that Qualify Section 179 Expensing
A business owner can use Section 179 to deduct tangible, long-term personal property. Keep in mind, however, that personal property used in residential rental property is excluded. So, rental property owners cannot use Section 179 to expense the cost of items they purchase for use inside rental units. Section 179 Deduction is available for most new and used capital equipment, while it also includes certain software.
Section 179 Deduction Eligibility
Landlords are eligible to take the Section 179 expense for the tax year in which they first put the item(s) purchased in service. Make sure you make the election when you file your original income tax return for that year. You cannot amend your return to elect Section 179 later.
Section 179 Deduction Limits
Be mindful of the limits to the Section 179 deduction. There is a dollar maximum you can expense which differs each year and is currently $500,000. The business income limit dictates that a business can only expense an amount equal to what it would take to break-even. The amount of your Section 179 expense election is also limited to a percentage use limit. Certain types of equipment, especially computers used in home offices, are used partially for business purposes and partly for personal use. If you use an item at least 50% for business, you can still take the Section 179 expense, but the amount you can expense is limited to the percentage of time the item is used for business.