Section 179 / depreciation maze

[PATAX]

C Corporation is a real estate lessor... residential rental property has capitalized improvements and expenditures for rental Furnishings like carpet, appliances, excetera... can Section 179 and/or bonus depreciation be utilized for the rental furnishings and/or capitalized improvements?... there is enough income for 179...Tried to research but there are a lot of variables on this one, including that they are a regular c corporation in the real estate lessor business, it is residential property, and type of capitalized assets... thank you for any help I appreciate it...

[Just-Lisa-Now-]

I do C-Corp returns, but will the program allow you to use 179 on those assets? Ive had it squawk at me when I try and use 179 when its not allowed.

[PATAX]

I tried the 179 on the five-year property which are the rental furnishings and it did work...

[TaxGuyBill]

Section 179 is only allowed if the rental activity rises to the level of a "Trade or Business".  If it does rise to that level, yes, Section 179 is allowed for thing like furniture and carpet.  Improvements to the property itself (things that would be depreciated over 27.5 years) does not qualify.

I'm not sure how the 1120 program works, but in the 1040 program, for purposes of the top section of Form 4562, ProSeries assumes that rentals DON'T rise to the level of a "Trade or Business".  So if it does rise to that level, you need to override the income on Line 11 to reflect the rental income/loss.  But again, that is how the 1040 program works; I'm not sure if the 1120 program is the same.

[TaxGuyBill]

With that being said, you may want to double check that you want to use Section 179 rather than 100% Bonus Depreciation.  For the federal tax return, in most cases Bonus would be better.  But states vary.

[PATAX]

Thanks Bill, I think they are automatically considered to rise to the level of a trade or business since real estate Lessor is there actual business activity code and that is why they were formed as a c corporation ... I usually do not take bonus depreciation and I think Pennsylvania does not allow it... Pa does allow $25,000 maximum for Section 179 I believe... client has a lot of net income so I'm trying to help them by maybe Section 179 or bonus depreciation ... Thanks for your help

[TaxGuyBill]

I could be wrong, but I don't think it is automatically considered a business just because the rental is owned by a corporation.

As a side note, have you advised the client that owning real estate in a C-corporation is generally a poor idea?

[PATAX]

Thanks Bill, all the corporation does is rental real estate lessor so I think they qualify, active participation... S election to be filed for 2022 tax year...