Section 179 on commercial rental property

Section 179 is for purchases that are used for the "active conduct of the taxpayer's trade or business", and is limited by the total "Trade or Business" income.  However, rentals are not always a "Trade or Business".

*IF* you determine the rental does qualify as a Section 162 "Trade or Business", you need to manually add the rental income to Line 11 of Form 4562 (Line 3b of the Depreciation Options worksheet will avoid an override).  The program does not automatically do this because the program does not know if it qualifies as a "Trade or Business" (although the QBI section should let it know if it qualifies as a Trade or Business).

*IF* the rental does not qualify as a "Trade or Business", Section 179 is not allowed.

Regulation §1.179-2(c)(6):

(6)Active conduct by the taxpayer of a trade or business -

(i)Trade or business. For purposes of this section and § 1.179-4(a), the term trade or business has the same meaning as in section 162 and the regulations thereunder. Thus, property held merely for the production of income or used in an activity not engaged in for profit (as described in section 183) does not qualify as section 179 property and taxable income derived from property held for the production of income or from an activity not engaged in for profit is not taken into account in determining the taxable income limitation.

(ii)Active conduct. For purposes of this section, the determination of whether a trade or business is actively conducted by the taxpayer is to be made from all the facts and circumstances and is to be applied in light of the purpose of the active conduct requirement of section 179(b)(3)(A). In the context of section 179, the purpose of the active conduct requirement is to prevent a passive investor in a trade or business from deducting section 179 expenses against taxable income derived from that trade or business. Consistent with this purpose, a taxpayer generally is considered to actively conduct a trade or business if the taxpayer meaningfully participates in the management or operations of the trade or business. Generally, a partner is considered to actively conduct a trade or business of the partnership if the partner meaningfully participates in the management or operations of the trade or business. A mere passive investor in a trade or business does not actively conduct the trade or business.