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Section 179 Qualified Improvement

Technical topics regarding tax preparation.
#1
Taxctfl  
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I have a new client who built out a new space she is renting. There was betterment so I have qualified improvement property to set up. I have never had a Section 179 carryover but that will be the case if elected. It seems like the best option is to take the Section 179 rather than depreciate $60k for several years, correct? What are the mechanics of this? The business is showing a very large profit in 2019 (so far). Does that mean the Section 179 will show up for the first time on her K-1 in 2019 provided it ends with a profit greater than the Sect 179 carryover? Thanks in advance.
 

#2
Wiles  
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Yes. Your analysis is correct.
 

#3
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Is the betterment first placed in service in 2019? Not really clear, as you've referred to the 2019 Section 179 as carryover...
 

#4
EADave  
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Can you Section 179 qualified improvement property? Was the technical glitch in the law corrected and I missed it? Been too busy hammering out S Corp returns. Ugh!
 

#5
Coddington  
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QIP has a definition in section 168, it just doesn't have a recovery period assigned. So when section 179(e) includes QIP under qualified real property, you can, in fact, deduct it. Just no bonus or 15-year life.
-Brian
Tax accounting methods and credits consultant for hire.

http://www.coddingtontax.com
 

#6
EADave  
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Brian, just to clarify, you’re referring to items such as roofs; heating, ventilation, and air-conditioning; fire protection and alarm systems, correct?

Do I have it right if you make interior improvements (walls, plumbing, lighting, etc), you are stuck with 39 year recovery, no bonus and no 179? I know this has been beat to death, sorry!
 

#7
Coddington  
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No, QIP is 39-year with no bonus but it is eligible for 179. It is the first category of property under 179(e).
-Brian
Tax accounting methods and credits consultant for hire.

http://www.coddingtontax.com
 

#8
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I am still unsure about the business income limit in this scenario. Is the passive rental income allowed as part of the business income? Isn't that supposed to be the income from the active conduct of your trade or business? Can you include your passive rental income in that amount in this case? That does not feel right to me but otherwise isn't the 179 deduction wasted?
Because on T.A. ten was the most you were allowed
 

#9
Coddington  
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Passive determinations under section 469 are mostly irrelevant to the section 179 active trade or business determination. Section 179 largely piggybacks off the same determination made under 199A.
-Brian
Tax accounting methods and credits consultant for hire.

http://www.coddingtontax.com
 

#10
EADave  
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I see. I’ve misunderstood the technical error. I have a client with over $200K in QIP this year, but with very little income as their operations didn’t start until Oct. I did break out all the 5 year Property we could without a “real” cost seg. Now, I suppose the strategy to implement is to await a technical correction in hopes Congress shoves QIP into 15 year Property. If not, we could always amend to elect 179 and carry forward the deduction into 2020, as the OP mentions.

Thank you for the post OP, and the info Brian; always a pleasure to get schooled by a fellow DFW-ian! By now, I think I owe you a year supply of a cold brew!
 


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