Source: http://www.taxalmanac.org/index.php/Discussion_Partner_Section_179_Expense_Deduction.html
Timestamp: 2020-04-07 01:32:04
Document Index: 478004653

Matched Legal Cases: ['§179', '§179', '§50', '§179', '§179', '§179']

TaxAlmanac - A free online tax research resource and community - Discussion:Partner Section 179 Expense Deduction TaxAlmanac - Discussion:Partner Section 179 Expense Deduction
Discussion Forum Index --> Tax Questions --> Partner Section 179 Expense Deduction
SUSANRID (talk|edits) said:
If the only activity of the partnership is to construct and manage commercial rental properties and the partnership return has no revenue or expenses on page one....and the rental activity results in a profit....can section 179 deduction be taken on items such as stoves and refrigerators contained within the commercial properties? My software does not allow it? Please advise.
Sec 179 isn't available for rental assets. For some reason. Pretty stupid, I know.
I forget this rule sometimes. Thanks be to the software gods!
I see no problem with claiming Sec. 179 on stoves and refrigerators in commercial buildings. Thus, if an office complex places 35 refrigerators into service during the year, all 35 refrigerators should qualify for Sec. 179.
However, Sec. 179(d)(1) and 50(b) exclude any property used in connection with the furnishing of non-transient lodging.
hi section 179 applies only to an active trade or business i have always understood it to be unavailable for rental activities whether or not they are residential or commercial. the active conduct standard under 179 is a different standard than under section 469. i would not take. bye
No refrigerator or microwave in your office, Wes?
hi yes at times i think i have an active trade or business. bye
Client gave me a K-1 for 2005 for an interest in commercial property he purchased in 2005 this K-1 showed a 179 deduction on the commercial rental property...I thought, jeez, you can't do that.
I would not have claimed the 179 either because I didn't consider Commercial rental an active trade of business so Riley2 is saying that since it is commercial property (nonlodging facilities) and NOT residential rental then the 179 may be taken?
Makes sense. Building needs a refrigerator to hold volitile chemicals? Do you make a distinction between a case where the tenant buys the asset for use in business and the case where the landlord supplies it and increases the rent accordingly?
mtm now you now why cpas disagree bye
For sure, nothing wrong with disagreement. Actually, I think it can make you a better advisor in many ways. What I mean by that is, I will communicate to my clients areas of disagreement between CPAs and or CPAs and IRS. Ultimately, the client can choose the position on the tax return they want to take, for example, salary versus distributions.
Wes, so you would not take the 179 on a commercial rental property because of 469?
And Riley2 would because it is not residential rental?
hi i dont take 179 on any rental property commercial or residential. not because of 469 but because it is not a t or b for 179 purposes. i have never been to any type of seminar or read that one could in 30 years. bye ps rileys good and i love to do combat with him. i dont mind getting wounded once in a while. boy do i love banter. bye for good.
So, Riley2?
Martineo (talk|edits) said:
Yes or Not? Made your mind, experts
My view, No section 179 for rental property-If I remember the rules properly--
I just reread Section 179 and some analysis of it and it doesn't say anywhere that you can't use Section 179 for rental properties. It does say that you can't use it for lodging (with the exception of motels) which I would say it residential rental property. But commercial rental property can use Section 179 as I read it. Heating and A/C units don't qualify though because they are specifically not allowed with Section 179. Any property attached to the building also would not qualify as it is real property. But things like refrigerators, microwaves, and other unattached equipment provided by the landlord would qualify on commercial property rentals.
Some of these discussions have been quite helpful to me in looking into why I hold certain opinions. Frequently it is because so and so said so in a class and I have not actually looked up the code or regs. So the question is, why does Riley2 believe 179 will be allowed for a lessor of a commercial building?
Section 179(d)(1)(c) limits the deduction to assets aquired for use in the active conduct of a trade or business. Most of us would not consider ownership and management of real property as a trade or business. However according to my research service (BNA Tax Management Library) "Ownership of property is a trade or business if the taxpayer's activities go beyond mere collection of income, investment management and the provision of customary tenant services." The example given is of a doctor who owns an apartment building. The doc spends 10 hours per week supervising repairs, screening tenants, doing landscapting, cleaning common areas, etc. So, if the rental activites constitute a trade or business, then Section 179 would be allowed.
Based on this analysis, it would not seem to be relevant as to whether the rental were commercial or residential in determining whether Section 179 could be taken, but rather whether the rental activity rose to the level of a trade or business.
But if the determination is made that the partnership does have a trade or business, wouldn't that make profit from the rental activities also subject to SE tax??
Warren's analysis is right on point. Sec. 179(d) refers to Sec. 50(b) to define what is not Sec. 179 property. Thus, a refrigerator in an office building or hotel room would be Sec. 179 property, but a refrigerator in an apartment building would not be Sec. 179 property.
But we're still stuck with determining whether the activity is a trade or business. If yes, Sec 179 will be allowed but profits will be subject to SE tax. If no, then Sec 179 will not be allowed.
Ok, I am a CPA, that is my trade and business. So, if I also happen to own commercial rental property and tenant says, a great tenant too, "...hey, buy a frig for the bldg..." I say no problem, $500 bucks later a frig is placed in service. Times comes to prep return, I would be hard pressed to put on Sch C or make subject to SE tax just so I can take a 179 deduction.
IRC 50(b)(2) kicks out the frig for a 179 deduction on residential property, yet, if commercial rental this is ok? I keep looking at 179(d)(1)(C) that says "...for use in the active conduct or a trade or business." Unless, rental of commercial real estate was your profession, and therefore on Sch C, how do you, or where do you, report the 179 deduction?
Assuming the commercial building is where your office is also located, buy the fridge for your CPA practice (employee lunches) and set it in the common area of the building. Otherwise, I don't think you can claim Sec 179 for a rental property (commercial or otherwise) unless you are willing for the rental income to be subjected to SE tax. Bad trade-off.
Sec. 179 property must be used in an active trade or business. However, not all active trades or businesses are subject to SE tax. For example, rental income from real estate is specifically exempt from SE tax, regardless of how active the owners are in the business, unless "extraordinary services" are provided.
such as a refrigerator? :)
Extraordinary services would include, for example, maid services in an apartment building.
Incidentally, I agree that the common-law definition of a trade or business for tax purposes is hazy at best. I believe the courts have ruled that rental activities can be treated as either property held for the production of income or property held in a trade or business. See for example E.R. Curphey, 73 TC 766 wherein the Tax Court ruled that managing six rental properties rose to the level of a trade or business.
Riley, as usual, you are correct. Sec 1402(a) defines net earnings from self-employment as "the gross income derived by an individual from any trade or busienss carried on by such individual ... EXCEPT that in computing gross income and deductions ... there shall be excluded rentals from real estate and from personal property leased with the real estate ... unless such rentals are received in the course of a trade or business as a real estate dealer ..."
But when, then, does the real estate rental activity rise to the level of a trade or business? Do you take the position that any property that meets the definition of Sec 179 property (via Sec 50(b)) is always allowed if the property is commercial?
I am with Jd,
when does renting a commerical property rise to the level of a "trade or business for purposes of the 179 deduction?
1) I have a full time non real estate job, I own and rent one commercial bldg with one unrelated tenant? Qualify for 179? 2) same as 1, but the blding has 10 tenants? Qualify for 179? 3) What if you hire a commercial leasing agent to handle tenants, rent collections etc...similar to residential property, Qualify for 179?
It would seem that Riley is saying that all rentals are trade or business, and that the application of §179 has nothing to do with the application of self employment taxes, but rather the connection to residential use.
What I read in Riley's last post was that be believed the courts ruled that rental property could be either held for production of income or held for trade or business.
So, is it the conclusion then that a TP can take 179 on commercial rental property irrespective of the TP's involvement and or whether or not the TP owns one small commercial bldg with one tenant or many bldging with many tenants? The backup for that belief is that commercial rental property is not specifically mentioned in 50(b) and that owning one small commercial blding qualifies under 179 as a trade or business?
I just want to make sure I understand the reasoning to arrive at the conclusion
hi back again i agree with riley that the rental activity has to have extraordinary services attached ie i have a client with a rooming house with rentals on weekly or monthly basis. he provides maid services personal property rents weekly etc. as such and with review of the rules i do take the 179 in that instance. to me that is the deciding issue whether commercial or residential propertty is not determinative. but 9 out of 10 times for the guy who owns one or several rental properties and just maintains and collects rent etc doesnt rise to the level of extraordinary. so i have never taken 179 because it is not an actvie t or b for 179. yes you have gotten comments above that a rental property is a t or b and that is correct but not for 179 purposes. the standard is different. bye
wes two comments does your keyboard have punctuation keys and capital letters if so please use them as they will enhance the readability of your comments
And, secondly, unsupported comments in a discussion like this are not particularly helpful. If you believe that the determination that a rental property classification as a trade or business is not what determines whether Sec 179 applies, how did you arrive at this opinion? Please cite chapter and verse so we can know how you have come to your conclusion.
Come on, Wes. You have both the experience and the knowledge to contribute positively to this discussion. "I've never taken it before and I'm not going to take it now" is hardly on point. At issue specifically is whether a trade or business has to be subject to SE tax to qualify for the §179 deduction. Collaterally, is not being mentioned in §50(b) to be considered authoritative?
HI wow I agree with riley and get hammered by jdugan and dennis? OK If I have some time I will look up the research. Man good chuckle. ps will try to use CAPS. bye
Actually, Wes, you disagreed with Riley.
Hi back again for JD and Dennis. Took an hour this am to search my RIA service.
The Small Business Jobs Protection Act of 1996 added the following to the list of property not qualifying for the 179 expenses election:
Dictum from the practioner note in my source book states
"This can be a troublesome issue. property used in the living quarters of a lodging facility, including furn and appliances, is considered as used predominantly to furnish lodging. The term lodging facility includes an apartmenr house, hotel, motel or any other facility where sleeping accomadations are provided.
However, property used by a hotel, motel, inn,or other simialr establishment is not considered used in connection with the furnishing of lodging if more than half of the living quarters are used to accommodate tenants on a transient basis (rental periods of 30 days or less) hey jd look a code cite :) See Code section 50(b)(2)(B) and treas reg 1.48-1(h).
Result. Property used by a hotel or motel in connection with the business of furnishing lodging for transients is eligble for 179 expensing. Such propery would include items such as TVs, radios, phones, clocks, hair dryers (wow) and furniture."
Also reg 1.179-l(i)(1) notes a lessor that merely holds property for the production of income does not meet the requirements of section 179. So that amongst other seminars and 30 years of just hanging out etc is why I dont take 179 for residential or commercial rentals without extra services or transient rentals. But I enjoy everyones opinion with and without cites. ps jd I have noticed some of your answers dont have cites even though they may be correct.
So jd and dennis heres the deal you get my opinion for free (I will throw in cites if it doesnt take long) but if you want me to support my opinions without cites listed etc I charge $250 an hour. If you want CAPs, proper punctuation and spell checks keep in mind that takes longer and you have to pay for it. I ma not the best typist. And if you disagree with me make sure you add a reason why not because I just didnt support my opinion. The first hour is on me. bye :)
Wes: Your time and effort is duly appreciated. It would have been nice if you answered the questions. Non transient lodging was never an issue. A hotel or motel would be subject to SE tax. Neither a lessor nor production of income is on point. Riley's Curphey citation apparently deals with the deductiblility of travel expense between properties and may or may not apply.
The questions we are wrestling with are specifically:
1) Can (and at what point) a commercial rental activity rise to the level of trade or business?
2) If it does, is it now subject to SE tax?
3) If it is not subject to SE tax does that mean the §179 deduction is unavailable?
Hi dennis as usual you are alittle "D and C" on this question ("travel expenses"?) and my answers dont seem to make sense to you either. But I will do my best.
Since I have answered the basic question (obviously not to dennis' understanding) I will tackle the new s/e question.
Real estate rental income where the taxpayer isnt a real estate dealer and performs no personal services for his tenants. Such income isnt included in net earnings form s/e tax. holbrook, richard s tc summary opinion 2001-135
Rental income and deductions attributable to r/e and pp rented with the r/e are not included in the computation of s/e income of an individual who holds the r/e for investment or speculation. code 1402(a)(1) reg 1.1402(a)-4(a) rr 55-559
If the ind. is a r/e dealer (that is one who holds r/e for the purposes of selling it to customers for profit in the normal course of business), the rents from the property are includible in net earnings forms s/e ( cites to numerous I guess you have to trust me dennis). If the dealer holds properties for sale and investment, only rents from the latter are excluded form net earnings from s/e.
IF the payments are made for rooms or other space where services (eg maid service) are also rendered to, and primarily for the convenience of, the occupant, the payments paid for rooms in hotels, boarding houses, apartment houses furnishing hotel services, tourist camps or tourist homes, or for space in parkings lots, warehouses or storage garages are not rentals form real estate and are subject to s/e tax. reg 1.1402-4(c)(2)
Insubstantial and routine services provided by the taxpayer to tenant/occupants wont jeopardize the exclusion for rentals from net earnings form s/e. Services that landlords furnish under most leases, such as heat, light, cleaning of public halls ,trash collection, etc, arent services primarily for the occupants convenience. reg 1.1402(a)-4(c)(2)
I have lots of examples of services provided in rental activites that met or failed to meet the "substantial services" test. But my fingers are tired. Tax research programs are a great service.
Anyways I am sure this will answer the s/e question or at least you all can now make your own determination. Dennis? well maybe not.:) I would love to see some bios on you folks.
Anyways it is sunny and beautiful here in Boston. I leave at 3 pm for a HS LAX game. the rest of you have a nice day. :) bye
So far, Wes, you are repeating and adding emphasis to what Riley already said. Riley also said he felt that §179 was available for commercial rentals. If you are going to disagree, please feel free to be on point.
Hi dennis your repsonse was as expected "D and C". I guess I didnt answer your questions. Dont you remember you just asked them. Any one else of importance? thanks Dennis but will not further respond. day is already half over. bye
Wes, thanks for your efforts this morning. No, all of my answers do not have citations. But those that don't typically are initial responses that have not yet engendered opposing opinions. I don't know who you are and you don't know who I am, so having discussed an issue for several days with varying opinions being proffered, it is time to back up opinions with some sources that you and I can both recognize as being somewhat more authoratative than some anonymous guy in an internet forum.
As Dennis has stated, the issue of transient lodging was never the key issue in the question being discussed above. Here is a summary of the flow of the discussion.
1. JR said 179 is not available for rental assets.
2. Riley suggested the Sec 179 can be claimed on a commercial rental property.
3. You pointed out that 179 can only be claimed on an active trade or business.
4. I pointed out that a rental activity may, at times, be considered and active t or b. But I expressed concern that if activity were determined to be active t or b and thus eligible for claiming 179, that SE tax would result.
5. Riley pointed out that a business could be an active t or b without necessarily being subject to SE tax. He pointed out that rental of r/e that is a trade or business is not subject to SE tax unless extraordinary services are provided. Having read Sec 1402(a), I concurred, (having learned something new).
6. I raised the question, when does a rental activity rise to the level of a t or b so that Sec 179 may be taken.
This is the point at which you commented and I took you to task. I am sorry if you were offended by my response. But at this point, the disagreement seems to be: WesR seems to say that a rental activity ONLY rises to the level of a t or b when extraordinary services are provided. If that is the case, SE tax will kick in and Sec 179 will be allowed. Riley seems to take the position that a rental activity may be a t or b WITHOUT providing "extraordinary services" and hence, Sec 179 will be allowed for COMMERCIAL properties without SE tax coming into play.
I participate in this forum for two reasons. Sometimes, my tiny bit of knowledge might be of assistance to someone and sometimes I might learn something from others. So, can we call a truce?
I agree with Wes this time. We could use more input here. The Curphey decision (which he either didn't bother to read or couldn't understand) had to do with taxpayer's deduction for travel expense between properties considered as separate business locations. The Tax Court apparently agreed that they were indeed separate "business" locations. Does that necessarily mean anything in context?
Riley has given his opinion. JD seems to be leaning in that direction. Wes disagrees, although nothing he has said seems to substantiate that opinion. And Mt and I would just like to know.
Hi JD dont worry I have thick skin and a tart/sarcastic tongue. why dont you list your bio like some of us? did you see my comment on s/e? I have two other partners here who thought I covered the s/e subject quite nicely . But I need to do some real work you and Dennis are not good credit risks :).
we can have a truce if I can still get a zinger in once in a while when it is deserved? although i have to be the judge and jury. :) ps i hope you have noticed i am trying to improve my readability (except here). bye
I'll chime in here, Wes, you have done quite a bit of work here. However, I do agree, you have not answered the question that I posed earlier and that Dennis recapped in his 2nd to last post. The hotel/motel stuff is not at issue here.
I am thinking you agree (maybe?) that you CAN'T take 179 on commercial rentals.
Riley's oringinal stmt on April 25 said "I see no problem with claiming Sec. 179 on stoves and refrigerators in commercial buildings. Thus, if an office complex places 35 refrigerators into service during the year, all 35 refrigerators should qualify for Sec. 179. However, Sec. 179(d)(1) and 50(b) exclude any property used in connection with the furnishing of non-transient lodging."
If I were preparing a return where 35 frigs were placed in a commercial bldg, I would NOT have taken 179 on the frigs because it had to do with rental property not a trade or business.
Is this right or wrong? Or just subject to the interpretation of 50(b) and trade or business under 179?
Wes, I posted my bio some time ago. I even added TDoyle's CPA logo to add a little class. I can only hope to aspire to receive one of the coveted forum awards being dished out! BTW, Dennis has been awarded one of those awards, so you need to be more respectful to him in your posts.:) And, yes, I commented yesterday on what a fine job you did on one of your posts using both the shift key and the period key - keep it up.
Hi if the rental is subject to s/e you can take 179. I personally dont care if it is commercial or residential as my discussion above regarding s/e doesnt distinguish or comment on this issue because it DOESNT MATTER to me or the research service or any of the cites I have listed after each and every line. sorry guys getting alittle tired and aggrivated.
So as far as rileys comments, here goes. If the rental of commercial and/or resditial property (in my mind and now mtm seems to understand) meets the definition to make it subject to s/e then i will take 179. if it doesnt i dont.
Can i be any clearer? mtm i agree with you. Yes yes yes. Unless dennis somehow figures out "I agree" means "I disagree" again. Sorry JD he just leaves himself wide open and I couldnt resist. Will try to be nicer but sometimes it is hard. bye again.
ps JD I dont much care about awards i do this for the fun and pay. will check out bio but seems like there was nothing there last time I looked. I like you now. hugs and kisses (hope you're not a guy) bye
found bio thanks bye
Wes, maybe I should put married, with wife and 3 kids in the bio. How about "high fives" instead of hugs & kisses?
hi ha ha ha very good. married 21yrs with two boys (did you catch the HS LAX reference). high fives are good hope you didnt catch my reading error before editing (ha ha on me)!!! you guys are going to tie me up until 3. bye
I give up on Wes. At the point where he took issue because I bothered to research Riley's citation it became apparent he has ego issues here. But as far as our discussion goes consider:
Trade or Business Requirement Section 195 permits a 60-month write-off of start-up costs only if they are related to the investigation or creation of an active “trade or business” (TOB). At the outset, this requirement precludes deduction of costs attributable to an “investment.” Operating income-producing real estate is generally considered to be an active TOB. The Senate Finance Committee Report in 1980 stated that “In the case of rental activities, there must be significant furnishing of services incident to the rentals to constitute an active business ... Thus, a rental activity is not considered to be an active trade or business solely because deductions attributable to it are allowable in computing adjusted gross income ... In general, the operation of an apartment complex, an office building or a shopping center would constitute an active trade or business.” Robert Klein, CPA - Real Estate Monitor, Winter 2004
Apparently the Senate Finance Committee agreed with Riley in 1980.
This wraps it up for me. Thanks.
I'm off the fence as well. If §179 were not available to commercial rental there would be no reason for the language specifically excluding non-transient lodging and attachments to buildings.
Write it off as supplies or replacements and have a great day!
Rlykins (talk|edits) said:
CPA here. I personally have significant rental property activity and have studied this issue extensively. The issue here is the exceptions provided under 179 - but do not have an IRS provided definition. For example, if your rental falls under "hotel", "motel" or "transient" then it's OK to take 179 depreciation for applicable real property used for rental. The problem is that there is no official IRS definition (that I can find anyway) for hotel, motel or transient. I have Florida properties that have average length of stays less than 7 nights. Sometimes people stay for 2 nights, 3 nights, I collect sales tax, and fill out "transient sales tax returns" to the state. Does that make this a "Transient rental" as far as 179 is concerned? If so, then this would be considered a commercial rental (not rental property) - these are schedule E questions - that would make 179 allowable.
Based on the well cited references above, you would appear to have no issue with section 179. The issue with residential rentals that never got answered pertains to "trade or business" which is something that as indicated above, is ambiguous and often defined by case law when it comes to residential rentals. In my view (no citings, sorry) anyone very active with several residential rental properties, including multiple unit properties exceeding 4 units that for lending purposes are considered "commercial" properties and that actively manages the properties "may" be eligible for the section 179 expense allowance and would not be subject to S/E tax. Does anyone care to prove beyond a reasonable doubt otherwise? If not, I will continue to aggressively pursue this position. By the way, never been audited on this one. Finally, as for punctuation, people should not be so obsessed by caps or punctuation as anyone that can read reasonably well can get beyond that issue. As Mark Twain said, "If you can't figure out more than one way to spell a word, you lack imagination"
Swheeler, the fact that there is an active trade or business is irrelevant in this context. The code simply provides that no Sec. 179 expensing election is allowed for property used in connection with the furnishing of non-transient lodging. See Sec. 179(d), Sec. 50(b), and 50(b)(2).
Ok. but I also read that if an individual is considered to be in trade or business with regards to rental properties that there is an exception. So again, what nobody answered is what constitutes a trade or business with regards to residential rental properties? IRS PUB 527 reads, "You cannot claim the section 179 deduction for property held to produce rental income (unless renting property is your trade or business). Am I missing something here? Is there a definition in the regs regarding a trade or business for this purpose, cause it's not in the code anywhere? Or is it more obscure than that i.e. a rev ruling. I didn't catch an answer on that one. Also, nobody in the previous string ever raised the issue as to why there is no self employment on rental properties which I think is becuase the income is generated from use of capital more than services. Clearly, it seems that the intent here is to keep the sec 179 limited to a trade or business other than that for residential rental properties as was evident when it was tied into section 38 ITC, but it's really not crystal clear. And if it doesn't get crystal clear, then I will consider still taking it for clients with multiple rentals that spin off lots of income. Also, I wanted to point out that lenders consider any property over 4 units a commercial property for loan purposes. Any impact there with regards to an exception?
Swheeler, you're late to the party. Riley answered the question regarding SE tax on rentals. See my first entry on 4/26/06. Sec 1402(a) specifically excludes RE rental income from being subject to SE tax.
Regarding punctuation and spelling, Wes & I made up a long time ago. He tried to give me hugs and kisses, but I politely informed him I am not that kind of guy. :)
Ok chief. But not to beat this to death, I'm not concerned about SE tax, I'm concerned about the "trade of business" definition as it would apply here. Again, am I missing something? By the way, I really love this website, what a great place to have discussions like this one.
Good luck finding that definition. You may want to reread the above. AFter extensive posts a year ago, each of us settled something in his/her own mind, but I don't think consensus was ever achieved. Wes and Riley are probably two of the smartest tax guys that lurk in here and I'm not sure they ever did come to agreement.
Swheeler, yes, the Tax Court has ruled that a taxpayer with as little as 6 rental properties is in a trade or business. However, as I indicated before, this is totally irrelevant for purposes of claiming Sec. 179 on residential rental properties, since Congress tells you in Sec. 179(d) that you cannot claim Sec. 179 on residential rental property unless the property is a motel or hotel.
OK. good deal. no real consensus, that's all I needed. But Riley, why does it clearly state in the IRS publication 527 what I indicated above. The statement clearly indicates an exception if residential rentals are an active trade or business. My guess is that, yes, they are referring to hotels and motels etc., but not residential rental properties, but this is not clear.
As for me, definitely not one of the smartest tax guys that lurks here, which is why I'm here, always questioning to the max, expecially that which isn't black and white.
See Sec. 179(d). If you feel more comfortable using IRS pubs for research purposes, see page 18 of Pub 946. Yes, it is true that Sec. 179 property cannot be held for production of income, and yes it is true that the property must be held in the active conduct of a trade or business. However, this does not mean that you can ignore Sec. 179(d) and make a blanket statement that all personal property held in the active conduct of a trade or business will qualify for Sec. 179. Example, if I own a 500 unit apartment complex, it is clear that this is property held in the active conduct of a trade or business. However, Sec. 179(d) and 50(b) [and page 18 of Pub 946] abolutely prohibits claiming Sec. 179 on any property used in connection with the furnishing of lodging unless the lodging is a certified historic structure, motel, hotel, or transient lodging. See Sec. 50(b)(2). I suppose it is possible that the 500 unit apartment building is rented exclusively to transients, but it is unlikely.
If I rent an apartment, I would expect it to have a kitchen refridgerator as well as a stove. I wouldn't consider these items to be furnishings.
Riley. I generally have never used the pubs for research, but hey, they do reflect IRS policy, don't they? So I understand what you are saying, except for the exception which again reads, "except when renting property is your trade or business" I think the intent is clear when you read between the lines and agree with you i.e. limited to motel and hotels, but there is no clear line from point A to point B here. It's ambiguous which is why so many of us are questioning it.
Anyway, thanks for the feedback. So far, over the past 12 years, I've been 100% successful in doing sec 179, and never audited, but the tide is changing here and things may change, who knows.
This is not a gray area. The law is not ambiguous. There is no need to read between the lines. Everything you need to know on this subject is contained in Sec. 179(d)(1).
In simple terms, Sec. 179(d) disallows Sec. 179 on certain trade or business property.
For example, would you claim Sec. 179 on equipment leased by an individual in his trade or business to another taxpayer under a one-year NNN lease? No, of course not since this would be a violation of the Sec. 179(d)(5) non-corporate lessor rules. Another example, would you claim Sec. 179 on a window air conditioning unit that is classified as personal property under local law? No, obviously not since that would be a violation Sec.179(d). Another example, would you claim Sec. 179 on trade or business property located outside of the United States? No, hopefully not since this would be a violation of Sec. 179(d). One final example, would you claim Sec. 179 on trade or business property leased to a tax-exempt organization or governmental entity? Hopefully not, since this would also be a violation of Sec. 179(d).
No, the pubs do not reflect IRS policy. The pubs don't even present a reasonable facsimile of the law. They are merely non-citable summaries of certain aspects of the law. The statute reflects the law as enacted by Congress and the Treasury Regulations reflect IRS policy.
You mention that "so many of us are questioning" Sec. 179(d)(1). I don't know of anyone who is questioning Sec. 179(d)(1). It has been in the statute since January 1, 1991 and I don't know of any movement to remove it from the statute.
I think that you are telling me that you have been ignoring Sec. 179(d)(1) and 50(b) for the past 12 years. I don’t doubt that at all, but that doesn’t mean that your luck will hold out for another 12 years.
Thanks for the info Riley. I haven't been ignoring section 179(d)(1) at all. However, there have been some opinions rendered since the mid nineties because I didn't dream this approach up. Unfortunately, and to my discredit, I don't have any hard copies, just some interpretations I read, one was from a USC accounting professor I think, but don't recall exactly. And as I mentioned above, I think you are probably right, but I still have reasonable doubt as I explained above and do believe the Pubs have weight in a matter like this. How much, I have no idea. Most CPAs I know aren't interested in thinking "outside the box" and are looking for black and white guidance. Here's a good example. I have noticed that up until a few years ago, but it still occurs frequently, CPAs will take an investment property acquired and allocate between land and improvements, but make no allocation for personal property i.e. drapes, carpet, appliances, door opener, automated sprinkler system, etc. etc. all of which are 7 year property. Do you make this allocation?
I've just gotten back into public accounting after a 10 year absence from 1995 to 2005, so I haven't really been getting away with a whole lot. Anyway, as we say here in CA, you are one sharp "dude" and thanks for setting me straight.
Steve Wheeler Santa Barbara, CA
Jsgcpa (talk|edits) said:
Hi, I'm new (first time long time) and promise to punctuate. Somewhere just before that long gap between May '06 and April '07 it seems the question about commercial real estate was settled in favor of that you CAN take 179 and not include it in SE income? Does the 1980 Committee report on section 179 that Dennis found absolutely settle the issue? Does everyone agree or was it just dropped at that point? When the discussion took up a year later it dealt only with residential properties, does that mean commmercial is a done deal?
Consensus here plus $2.00 $3.00 will get you a cup of coffee at Starbucks, not much else. Reread the thread. Come to a conclusion. You don't have to satisfy anyone here, you only have to satisfy yourself (and an auditor, if the time comes).
Gotcha. Not like I can cite this thread to that auditor anyway!
One thing I might add that I don't think was brought up above is PLR 9126014 3/29/91, relating to a 1990 tax year, which among other things asked whether "net profit or loss from Taxpayer's active conduct of rental real estate activities" is "includible for determining...Taxpayer's aggregate amount of taxable income from the active conduct of any trade or business under section 179(b)(3)(A) of the Code." Although it's a PLR which by its terms cannot be cited as precedent, I like it better than the committee report because it specifically references section 179 (the committee report related to 195).
As to this issue, the IRS concluded that "that for purposes of section 179(b)(3)(A) of the Code, the computation of the 'aggregage amount of taxable income' of Taxpayers...includes ... net profit and loss from Taxpayer's conduct of rental real estate activities, provided it is determined that Taxpayer's involvement constitutes active conduct of a trade or business." To the extent that a PLR can settle it, and given that the flush language of 179(d)(1) raises additional issues for residential property, to me that at least settles it for commercial realty.
It's too bad you can't cite a PLR as precedent or substantial authority.
CAtax (talk|edits) said:
The Tax Court has ruled that a taxpayer owning as few as 6 rental properties could be considered to be conducting an active trade or business.
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Categories: Tax Questions | Passive Activity | Rental Property | Section 179
This page was last modified on 27 May 2011, at 20:22.