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Section 179 Deduction Rules of the Tax Cuts and Jobs Act

The recent tax reform, known as the Tax Cuts and Jobs Act (TCJA), added some good benefits to your real estate rentals. Both residential and commercial properties obtained a number of new tax breaks with respect to Section 179 deductions and bonus depreciation. The new breaks make it easier for you to plan your business income for the year.

Liberalized Section 179 Deduction Rules for Nonresidential Buildings and Property Used to Furnish Lodging

For qualifying property placed in service in tax years beginning in 2018, the TCJA increases the maximum Section 179 deduction to $1 million (up from $510,000 for tax years beginning in 2017).

As you probably know, the Section 179 deduction privilege allows you to deduct the entire cost of eligible property in Year 1.

For real estate owners, eligible Section 179 property includes any improvement to an interior portion of a nonresidential building if the improvement is placed in service after the date the building was placed in service.

The TCJA also expands the definition of eligible property to include expenditures for nonresidential building roofs, HVAC equipment, fire protection and alarm systems, and security systems.

Finally, the TCJA expands the definition of Section 179 eligible property to include depreciable tangible personal property used predominantly to furnish lodging. Examples of such property include beds and other furniture, appliances, and other equipment used in the living quarters of a lodging facility such as an apartment house, dormitory, or other facility where sleeping accommodations are provided and rented out.

Warning: Section 179 deductions cannot create or increase an overall tax loss from business activities. So you may need plenty of positive business taxable income to take full advantage of the Section 179 deduction privilege.

100 Percent First-Year Bonus Depreciation for Qualified Real Property Expenditures

For qualified property placed in service between September 28, 2017, and December 31, 2022, the TCJA increases the first-year bonus depreciation percentage to 100 percent (up from 50 percent).

Unlike the old 50 percent deduction, which was for new property only, the new 100 percent deduction is allowed for both new and used qualified property.

Jesse Lothamer J.D., C.P.A., E.A.

Lothamer Tax Resolution

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