Can individuals claim Section 179 depreciation for rental property improvements?
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Individuals can claim Section 179 deductions for certain improvements to rental property, but there are important limitations and requirements that must be met. The eligibility of a particular improvement for Section 179 expensing depends on the type of property, the nature of the improvement, and the taxpayer’s involvement in the rental activity.
1. Section 179 Overview and Eligible Property
Section 179 allows taxpayers to elect to expense the cost of qualifying property, rather than recover it through depreciation over several years. For 2025, the maximum Section 179 deduction is $1,250,000, with a phase-out threshold at $3,130,000. The deduction is also limited to the amount of taxable income from the active conduct of a trade or business for the year.
Qualifying property for Section 179 includes:- Tangible personal property (e.g., equipment, appliances, furniture) used in a trade or business.- Certain improvements to nonresidential real property, specifically: - Qualified improvement property (QIP) as defined in IRC §168(e)(6), which includes interior improvements to nonresidential buildings, but not enlargements, elevators/escalators, or structural framework. - Certain improvements to nonresidential real property placed in service after the property was first placed in service, such as roofs, HVAC, fire protection and alarm systems, and security systems.
Residential rental property (e.g., apartment buildings, single-family rentals) generally does not qualify for Section 179 expensing for improvements to the building itself, but tangible personal property used in the rental activity (such as appliances or furniture) may qualify.
2. Rental Activity: Passive vs. Active
A key limitation is that Section 179 is only available for property used in an active trade or business. Rental activities are generally considered passive activities under IRC §469, and passive activities are not considered an active trade or business for Section 179 purposes. However, if the taxpayer materially participates in the rental activity—such as by spending more than 500 hours per year managing the property—the activity may be considered a trade or business, and Section 179 expensing may be available.
3. Application to Rental Property Improvements
- Personal Property in Rentals: Individuals can claim Section 179 for tangible personal property (e.g., appliances, carpets, furniture) used in rental units, provided the rental activity rises to the level of a trade or business (i.e., the taxpayer materially participates).
- Improvements to Nonresidential Real Property: Section 179 can be claimed for certain improvements (QIP, roofs, HVAC, fire protection, security systems) made to nonresidential rental property, again only if the rental activity is a trade or business.
- Improvements to Residential Rental Property: Section 179 generally does not apply to improvements to residential rental buildings themselves (e.g., new roof, windows, structural changes), but may apply to personal property within the rental.
4. Recordkeeping and Recapture
Taxpayers must maintain detailed records substantiating the cost, nature, and business use of the property. If the property’s business use drops to 50% or less during its recovery period, the Section 179 deduction is subject to recapture as ordinary income.
5. Summary Table
6. Conclusion
Individuals can claim Section 179 deductions for improvements to rental property only if:- The property is tangible personal property (or certain improvements to nonresidential real property),- The rental activity is conducted as a trade or business (not a passive activity), and- The property is used more than 50% for business purposes.
Improvements to residential rental buildings themselves are generally not eligible for Section 179 expensing, but personal property within the rental may qualify if the activity is a trade or business.
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