Understanding Software Approach: Partnership Return: Section 179 vs Special Depreciation

[Lewis J]

I believe I am making an error on how to enter a 179 deduction on an Asset Entry Worksheet

Here's the situation:

SPECIAL DEPRECIATION

1.  I have a partnership return which has a single commercial rental building

2.  Partners paid $45,375 K for a new roof in 2023 and have $80K of income

3.  I created an Asset Worksheet for the roof, put in service in 2023.  I entered code "J5" (Qualified Improvement Property) for the type of asset on the Asset Worksheet.  I also check "yes" for Economic Stimulus - Qualified Property, just under the type of asset.

4.  The actions above in paragraph 3 properly generates $36,300 on line 14 (80% of the $45,375) of Form 4562 (Part II Special Depreciation Allowance and Other Depreciation) and shows up on line 14 Depreciation)  on Form 8825.  All is perfect, but...........

SECTION 179

5.  When I attempt the same process as described above for Special Depreciation, I do not achieve success on the Section 179 deduction showing up on the 4562 or 8825.  Here is my approach

6.  I enter $45,375 on the Section 179 deduction line on the Asset Entry Sheet to the right of Date placed in service

7.  I have used these Type of Asset codes:

                            J5 - Qualified improvement property

                            J6 - Roofs/HVAC/Fire/Alarm/Security

In both the cases of J5 and J6, the $45,375 shows up on line 8 of Form 4562 but shows up in the Smart box immediately below as being limited on line A and then on line D as "Disallowed"

Can anyone assist in helping me figure out my error?  Thanks,

Lew

[Jim-from-Ohio]

could it be 179 deduction cannot produce a loss?

[Terry53029]

Could be too early, as a lot more updates to go. a roof should be j6 not j5

[sjrcpa]

3. Section 179 gets passed through on Schedule K-1s

[Lewis J]

Thanks - but a loss is not produced - with $80K of gross income, even with $45K of section 179, the net income would still be $9K - so that's not it - still searching for answer - but thanks

[Lewis J]

Thanks for comment on J6 - J5 works for Special Depreciation because its qualified improvement property, 

You could be right about more updates to come although the section 179 is not a new procedure s I would think it had already been coded in prior years - we'll see - not planning to file this one for at least 30 days

[Lewis J]

( did not see it as a separately stated item on K-1s and ordinary income is not reduced - thanks 

[TaxGuyBill]

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@Lewis J wrote:

1.  I have a partnership return which has a single commercial rental building

2.  Partners paid $45,375 K for a new roof in 2023 and have $80K of income

7.  I have used these Type of Asset codes:

                            J5 - Qualified improvement property

                            J6 - Roofs/HVAC/Fire/Alarm/Security

the $45,375 shows up on line 8 of Form 4562 but shows up in the Smart box immediately below as being limited on line A and then on line D as "Disallowed"

Can anyone assist in helping me figure out my error?  Thanks,

---

A roof is not Qualified Improvement Property.  So you can't use J5 for a roof.

The problem is because it is a rental in ProSeries.  Section 179 only applies to a "trade or business", and ProSeries automatically assumes a rental is NOT a "trade or business".  Does this rental rise to the level of a "trade or business"?  The income limitation is on line 11 of Form 4562.  As you probably see, ProSeries does not factor in the rental when calculating that number. 

If the rental DOES rise the level of a "trade or business", you can double-click the box for 11 and it will bring you to a worksheet that you can manually add in the rental profit.