Section 179 Deduction Rental Property?

Depreciation is one of the nicest aspects of owning a rental property. Over the course of 27.5 years, you can take out the true value of your investment until you completely recover the amount you invested into that property. Under a Section 179 deduction, you can actually deduct some of the cost of the property faster than 27.5 years. You can, in fact, deduct the cost in a single year. There is only issue that must be addressed to take this deduction: your rental property must be a business and not an investment.


You Must Work At Your Rental Property Regularly

To take the Section 179 Deduction, you must be able to prove that you work with your rental properties on a regular basis. You must have a systematic and continuous presence as a landlord or a property manager. Without this, you can still take some items you may have purchased for your business over the year with this single year deduction, but not every item. What are some items that typically qualify for the Section 179 deduction?

  • Mobile phones and other computing devices.
  • Office equipment that is used for non-personal uses.
  • Office furniture that is dedicated to your office.
  • Vehicles purchased to facilitate the successful running of your business.

If you don't qualify for the Section 179 deduction, then you can still take depreciation over the regular schedule. Simply owning a rental property does not qualify for this deduction. If you have a property manager acting as your landlord, then tax laws view your property as an investment and you would be disqualified from the single year deduction.

There Are Annual Limits to This Deduction

Even if you do fully qualify for a Section 179 deduction, the tax laws have a limit in place for the amount that can be claimed. Under the last taxing year, this limit was $500,000. Starting in 2014, however, the limit has been reduced to a $25,000 investment limit with a $200k income limit – unless tax laws change before filing is required. It is important to remember that these limits apply to all of your businesses and not on an individual basis. You can still depreciate whatever costs that you cannot fit into the Section 179 deduction, so it often makes sense to take the full deduction on the long-term investments and to let the short-term investments depreciate. Every taxing situation is unique, however, so make sure to consult with your tax advisor about your specific questions. As a final consideration, you must use your item for business at least half of time over the full course of the depreciation period. If you have a computer, this would mean needing to use it 50% for business purposes over the next 5 years. When used correctly, this deduction can quickly limit your tax liabilities over the course of a year. Make sure that you qualify and then add this to your annual tax return for your rental properties.

Posted on Nov 21, 2014


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