Sequoia Investments helps clients maximize the benefits of the Section 179 tax deduction, a powerful incentive for business owners.
What Is Section 179?
Section 179 allows businesses to immediately deduct the cost of qualifying property rather than depreciating it over time.
Key Benefits for Rental Property Owners
- Immediate Tax Savings: Deduct the cost of qualifying assets in the year of purchase, boosting cash flow.
- Expanded Eligibility: Now includes property used in lodging, such as refrigerators, beds, and ranges in apartment complexes, dormitories, or similar facilities.
- Increased ROI: Faster deductions enhance the financial performance of rental properties.
Active Trade or Business Requirement
Rental real estate must rise to the level of an active trade or business to qualify. This is determined by the owner’s meaningful participation in managing or operating the property. Examples of qualifying activities include overseeing property managers, approving leases, and making strategic decisions.
How Noncorporate Lessors Can Qualify
Noncorporate lessors must meet specific criteria, such as:
- Having lease terms under 50% of the property’s class life.
- Incur expenses (e.g., maintenance or utilities) exceeding 15% of the property’s rental income within the first 12 months.
Partnership and S Corporation Advantages
- Partnerships and S corporations can claim Section 179 deductions for qualifying assets.
- Reporting on Forms 1065 and 8825 ensures compliance while unlocking potential deductions.
- Real estate professionals in partnerships can benefit from greater flexibility in tax planning.
Real-World Example
Imagine owning an apartment complex with $200,000 in rental income. Through active management, including overseeing a property manager, you meet the trade or business requirements. By leveraging Section 179, you could deduct $90,000 in qualifying property costs, significantly reducing taxable income.
Contact us today to discover how you can leverage Section 179 to acquire tax-efficient wealth-building assets.
