Section 179 Deduction
Is the Section 179 Expensing Deduction available for equipment use in a Real Estate Rental Businesses (Sched E). then, why or why not? Is the treatment different for a LLC?
Diane Kennedy's book "Tax Loophole" discusses this, I have also seen it discussed on the web, but, fact is, I dont understand 'Tax treatment of Rental Property', e.g., real estate and assets used in a real estate business, inlight of looking at Pub 946 and 525. (Normally I can see the intent the IRS has when looking at their treatment of issues in the Tax code, but not here)
To be honest the whole area of Passive Business Income, specifically Rental Property Income and even Leasing Buisiness treatment is very confusing when looking at the IRS Pubs. Where can one go to understand the intent behind the rules? any books, or does anybody know a good CPA in Southern Md. Dianne Kennedy wants $6000 for her business to provide a strategy guide for me, I'n ready for that one just yet?
thx/Steve
Here is my take,
IRC Section 179(b)(3)(A) says, "The amount allowed as a deduction under subsection (a) for any taxable year shall not exceed the aggregate amount of taxable income of the taxpayer for such taxable year which is derived from the active conduct by the taxpayer of any trade or business during such taxable year."
Since Section 179 deductions are limited to an active trade or business, and since rental property operations are defined (by default) as a passive income activity, Section 179 deductions are not allowed for rental property operations.
Not sure if this will answer your question or not, but you might check out a book called 'Inc. and Grow Rich'. It talks about using specific business structures to pay less in taxes. It may touch on your specific question.
Good luck!
Interesting question.
The terms active and passive do not have the same meanings as they do for the passive loss rules. Therefore, some rental activities may meet the active trade or business requirement.
The preamble to the Section 179 regulations state that "active" and "passive" do not have the same meanings as in Sec. 469 and the regulations thereunder; that is, the active conduct standard under Sec. 179 is a different standard than the material participation standard under Sec. 469.
Therefore, it can be inferred that rental activities can meet the Regs. Sec. 1.179-2(c) (6) trade or business requirement, possibily allowing additional purchases to qualify for the election and increasing or decreasing the income limitation by the income or loss of any such qualifying activities.
Hope this helps.
This is where you get a cpa that is experienced in this. NOt a time to try and invent the wheel all over again.
[addsig]
I agree--No time to tread without certified professionals.-- But, there has to be some logic to how the IRC differs in its treatment of the various forms of 'income producing' businesses (which is a term I realy do not have a handle on). For example, what is really different, when some one qualifies as a real estate professional (meeting both ownership and 760 hr time test) and they are now allowed to deduct passive losses greater than 25k and they are no longer subject to the 100K phaseout for the deduction to be applicable.
Does this occur because the IRC is treating the business 'differently'; no longer as a passive business real estate activity, so that a different Section should be looked to, in the IRC, which may better apply to the conduct of their business; with regards to income, expenses and the expensing deduction.
To follow, so, if its no longer 'passive income' then its 'regular business income', and therefore should be treated more like a Schedule C business.
I did order the book, thxs.