179(e) Restaurant HVAC TJCA

New HVAC in restaurant can be 179'd now if taxpayer elects QRP...right?

Yes, assuming the new HVAC is an improvement to an existing building.

Thanks Coddington. I hope these rules quit changing...my fixed asset depreciation schedule looks so screwy.

What do you mean elects QRP? There is nothing to do other than claim it on the 4562, right?

C corporation is closely held. Rental activity is passive. But it rises to the level of a trade/business under the case law that I have seen for individuals. Rental is profitable, HVAC is 39.5 year property, but I can claim 179, yes? Like OP, I am looking for reassurance since this looks so screwy.

I am sure that I am missing a step because Lacerte is telling me that my depreciation method is invalid for sec 179 expense.

I am working on a 2018 return with a 10/31 FYE. Sec 179(e) says that a/c property for nonresidential real estate placed in service after the date the building was first placed in service is eligible for Sec 179.

This is not a small window a/c unit, so it is 39.5 year property, yes?

What am I not understanding? It is hard to believe that at this late date, Lacerte is generating this diagnostic in error.

Since the tax year began before 1/1/2018, it would not apply in this case. Here is the effective date language from the TCJA:

(d) <<NOTE: 26 USC 179 note.>> Effective Date.--The amendments made
by this section shall apply to property placed in service in taxable
years beginning after December 31, 2017.

Thanks, Brian. Sorry I was unclear. Tax year began 11/1/2018 and ends 10/31/2019. Property placed in service 5/2019.

The a/c unit is 39.5 year property and is eligible for 179, correct?

And the Lacerte critical diagnostic is wrong??? Perhaps I will give them a call tomorrow.

Thanks.

Sorry. Yes, the Lacerte diagnostic is wrong. I've encountered other practitioners who have run into the same issue.

I think Lacerte’s diagnostic is just asking you to confirm the property is QIP by checking a box.

Thank you both for the help.

Wiles, thanks for the heads up with Lacerte, but just to get super technical, Lacerte asks if it is qualified improvement property. But the a/c unit is not. Qualified improvement property is under 179(e)(1). The a/c unit is qualified real property under 179(e) and 179(e)(2).

So it would seem that Lacerte's question for checking the box is too limited, and the 2019 program has not been corrected either.

Agree?

Ah! I see what you mean. The Lacerte diagnostic reads:

YOU HAVE ELECTED TO TAKE SECTION 179 EXPENSE ON AN ASSET WITH A 39 YEAR CLASS LIFE. THE PROGRAM CONSIDERS THESE TO BE ASSETS QUALIFYING FOR REAL PROPERTY SECTION 179 EXPENSE. IF THIS IS INCORRECT, ENTER 2 IN THE DEPRECIATION SCREEN, "SECTION 179 EXPENSE: 1 = NOT QUALIFIED PROPERTY, 2 = NOT QUALIFIED REAL PROPERTY [O]". NOTE: SOME STATES DO NOT ALLOW SECTION 179 EXPENSE TO BE TAKEN ON QUALIFYING REAL PROPERTY.

Lacerte has a checkbox to indicate the asset is "Qualified improvement property nonresidential for section 179". Marking this checkbox does not eliminate this diagnostic. This checkbox would only apply to §179(e)(1) property.

Lacerte wants you to use this other field to indicate the property is not §179(e)(2) property. I do not follow the programmer's logic here. Both "1" & "2" are indicating the property does not qualify.

It seems all of this could have been accomplished with a single checkbox indicating the property qualifies for Sec 179 under §179(e).

Agree?

No, the check-box makes specific reference to Sec 179.

Sure, Lacerte could have one QRP checkbox for (e)(1) stuff that is also QIP and a second checkbox for the (e)(2) stuff, like HVAC units…but what’s the point?

Perhaps, Lacerte was thinking (hoping like the rest of us) that Congress would fix the QIP issue, thus these two separate inputs.

Jeff, my issue is with the language. Lacerte asks us to check the box if it is “qualified improvement property”. I think that the box should refer to “qualified real property” so that 179(e)(1) and 179(e)(2) property are included.

I do not follow the programmer's logic here. Both "1" & "2" are indicating the property does not qualify.

Just go into the field and hit F1 and you’ll understand.

Jeff, my issue is with the language.

I get it. I know what the programmers mean. Functionality isn’t affected and the diagnostic doesn’t mean anything. It’s just alerting you that you’re claiming 179 on a long-lived, real property asset.

So what are you Lacerte users doing. Just leaving it in the "Critical Diagnositics" area? Will the return still e-file?

Same issue with Drake software, but it is notes only and not critical diagnostics and does not prohibit efiling.

"Qualified improvement property 39 year nonresidential for section 179." Found this box in Lacerte under Federal Depreciation.
Not sure if this came with a recent update, but this must be the box to check for the HVAC 179 deduction.

Drake users - how are you putting this in to get it take the 179. I can not get it to take it.

So after a LONG hold with Drake - they suggested I put in QIP with a 15yr life and a property type of 1250. Then the 179 amount.

SIGH - thoughts?

As long as you 179 the entire cost of the asset, that won't create a problem on the depreciation side, but it could create a QBI problem if that is around in 15 years.