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Jonathan Tierney
Jonathan Tierney, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 307
Experience:  Tax Accountant at Praxair, Inc.
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Are there any circumstances, that a purchase of a dwelling

Customer Question

Are there any circumstances, that a purchase of a dwelling unit that will be used to rent to transients (7/30 days), can qualify for section 179 deduction? I qualify this year as a "Real Estate Professional"
Submitted: 4 months ago.
Category: Tax
Expert:  Lane replied 4 months ago.

I'm so sorry, but real property is specifically excluded in Section 179 (26 U.S. Code § 179).

...

here's the list of excluded property

...

  • Real Property 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.
  • Air conditioning and heating equipment is generally not eligible for the Section 179 Deduction.
  • Property used outside the United States generally does not qualify for the Section 179 Deduction.
  • Property that is used to furnish lodging is generally not qualified for the Section 179 Deduction.Property acquired by gift or inheritance, as well as property purchased from related parties does not qualify for the Section 179 Deduction (No, you can't sell equipment to yourself and qualify for Section 179).
  • Any property that is not considered to be personal property, may not qualify for the Section 179 Deduction.
  • Used Equipment (that is new to you) qualifies for Section 179, however used equipment does not qualify for Bonus Depreciation (if offered in a given tax year).
Expert:  Lane replied 4 months ago.

I hope you’ll rate me (using those stars, or faces on your screen, by clicking submit) based on thoroughness and accuracy, rather than any good news / bad news content. Otherwise I’m working for no crediting at all here.

Thank you!

Lane

I have a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.

Customer: replied 4 months ago.
Thank you. Yes, I am aware that real property is excluded. However, there is an exception for property used in business (i.e Hotel/motel or where the predominant portion of the the dwellings are used in rental to transients)
Expert:  Jonathan Tierney replied 4 months ago.

Hi, my name is ***** ***** I can help. Yes, IRC 179(f) provides that qualified leasehold improvements property, qualified restaurant property, and qualified retail improvement property can qualify for the 179 deduction. The definitions of each are in IRC 168 (found here: https://www.law.cornell.edu/uscode/text/26/168) and are as follows:

(6)Qualified leasehold improvement propertyThe term “qualified leasehold improvement property” has the meaning given such term in section 168(k)(3) except that the following special rules shall apply:(A)Improvements made by lessor

In the case of an improvement made by the person who was the lessor of such improvement when such improvement was placed in service, such improvement shall be qualified leasehold improvement property (if at all) only so long as such improvement is held by such person.

(B)Exception for changes in form of business Property shall not cease to be qualified leasehold improvement property under subparagraph (A) by reason of—(i)

death,

(ii)

a transaction to which section 381(a) applies,

(iii)

a mere change in the form of conducting the trade or business so long as the property is retained in such trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in such trade or business,

(iv)

the acquisition of such property in an exchange described in section 1031, 1033, or 1038 to the extent that the basis of such property includes an amount representing the adjusted basis of other property owned by the taxpayer or a related person, or

(v)

the acquisition of such property by the taxpayer in a transaction described in section 332, 351, 361, 721, or 731 (or the acquisition of such property by the taxpayer from the transferee or acquiring corporation in a transaction described in such section), to the extent that the basis of the property in the hands of the taxpayer is determined by reference to its basis in the hands of the transferor or distributor.

(7)Qualified restaurant property(A)In generalThe term “qualified restaurant property” means any section 1250 property which is—(i)

a building, or

(ii)

an improvement to a building,

if more than 50 percent of the building’s square footage is devoted to preparation of, and seating for on-premises consumption of, prepared meals.

(B)Exclusion from bonus depreciation

Property described in this paragraph which is not qualified leasehold improvement property shall not be considered qualified property for purposes of subsection (k).

(8)Qualified retail improvement property(A)In generalThe term “qualified retail improvement property” means any improvement to an interior portion of a building which is nonresidential real property if—(i)

such portion is open to the general public and is used in the retail trade or business of selling tangible personal property to the general public, and

(ii)

such improvement is placed in service more than 3 years after the date the building was first placed in service.

(B)Improvements made by owner

In the case of an improvement made by the owner of such improvement, such improvement shall be qualified retail improvement property (if at all) only so long as such improvement is held by such owner. Rules similar to the rules under paragraph (6)(B) shall apply for purposes of the preceding sentence.

(C)Certain improvements not includedSuch term shall not include any improvement for which the expenditure is attributable to—(i)

the enlargement of the building,

(ii)

any elevator or escalator,

(iii)

any structural component benefitting a common area, or

(iv)

the internal structural framework of the building.

Expert:  Jonathan Tierney replied 4 months ago.

However, the three categories of qualified real property eligible to claim 179 expense expired in 2015 and have not been renewed for 2016 unless Congress retroactively extends the provision (which it has done in the past). In addition, 179 depreciation can be taken on real estate if the property is located in a designated disaster area. However, there is no specific qualification for property that is to be rented to transients unless that property happens to be located in a disaster zone. Where is the property located?

Customer: replied 4 months ago.
A condominium is not considered "QUALIFIED REAL PROPERTY" and excluded. Unfortunately that did not answer my question.

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