What types of property qualify for Section 179 expensing under IRS rules?
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Section 179 of the Internal Revenue Code allows taxpayers to elect to expense the cost of certain qualifying property in the year it is placed in service, rather than recovering the cost through depreciation over several years. The types of property that qualify for Section 179 expensing are defined by statute, regulations, and IRS guidance, and have been expanded by recent legislation. Below is a comprehensive summary of the types of property that qualify for Section 179 expensing as of 2025, with references to the relevant legal authorities and important nuances.
1. Tangible Personal Property
- Definition: Tangible personal property is any tangible property that is not real property. This includes machinery, equipment, vehicles, furniture, and certain livestock.
- Examples:
- Machinery and equipment used in a trade or business (e.g., manufacturing equipment, farm tractors).
- Office equipment (e.g., computers, printers, copiers, calculators, typewriters).
- Vehicles (subject to special limitations for passenger automobiles and SUVs).
- Livestock used for draft, breeding, dairy, or sporting purposes (e.g., horses, cattle, hogs, sheep, goats, mink, and other furbearing animals).
2. Other Tangible Property (Not Buildings or Structural Components)
- Eligible if used as:
- An integral part of manufacturing, production, or extraction.
- Furnishing transportation, communications, electricity, gas, water, or sewage disposal services.
- A research facility used in connection with the above activities.
- A facility used for the bulk storage of fungible commodities.
3. Single-Purpose Agricultural or Horticultural Structures
- Definition: Buildings or enclosures specifically designed, constructed, and used for housing, raising, and feeding a particular type of livestock (including poultry), or for the commercial production of plants or mushrooms.
- Requirements: The structure must be used only for the qualifying purpose; any work space must be used solely for activities related to the livestock or plants.
4. Storage Facilities (Except Buildings/Structural Components) for Petroleum Distribution
- Definition: Storage facilities (not buildings or their structural components) used in connection with distributing petroleum or any primary product of petroleum qualify.
5. Off-the-Shelf Computer Software
- Definition: Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified.
- Note: Databases or similar items are not considered software unless they are in the public domain and incidental to the operation of otherwise qualifying software.
6. Qualified Real Property
Section 179(e) and (f) allow certain real property improvements to be expensed under Section 179. These include:
a. Qualified Improvement Property (QIP)
- Definition: Any improvement to an interior portion of a building that is nonresidential real property, placed in service after the building was first placed in service by any person.
- Exclusions: Improvements attributable to the enlargement of the building, any elevator or escalator, or the internal structural framework of the building are not QIP.
- Examples: Interior renovations, new lighting, interior walls, ceilings, and flooring.
b. Certain Improvements to Nonresidential Real Property
- Eligible improvements (if placed in service after the building was first placed in service):
- Roofs
- Heating, ventilation, and air-conditioning (HVAC) property
- Fire protection and alarm systems
- Security systems
- Note: These improvements must be to nonresidential real property and placed in service after the date the building was first placed in service.
7. Other Specific Property Types
- Facilities used for the bulk storage of fungible commodities (e.g., grain bins).
- Certain portable air conditioners or heaters (if placed in service after 2015).
- Qualified section 179 real property as defined above.
8. Special Rules and Limitations
- Property must be acquired by purchase for use in the active conduct of a trade or business. Property acquired by gift, inheritance, or from related parties (as defined in Section 267 or 707(b)) does not qualify.
- Estates and trusts cannot claim Section 179.
- Noncorporate lessors generally cannot claim Section 179 unless they meet specific requirements regarding the lease term and use of the property.
- Certain vehicles (SUVs) are subject to a dollar cap on the amount that can be expensed under Section 179.
9. Property That Does Not Qualify
- Land and land improvements (e.g., swimming pools, paved parking areas, wharves, docks, bridges, fences not used in agriculture).
- Buildings and their structural components (except as described above for QIP and certain improvements).
- Property used predominantly outside the United States (with limited exceptions).
- Property used by tax-exempt organizations or governmental units (unless used in a taxable unrelated trade or business or leased for a term of less than 6 months).
- Property held for investment.
10. Recent Legislative Updates (2025)
- The maximum Section 179 deduction for 2025 is $2,500,000, with a phase-out threshold of $4,000,000, both indexed for inflation.
- The definition of qualified real property and the types of improvements eligible for expensing remain as described above, following the expansions made by the Tax Cuts and Jobs Act and subsequent legislation.
11. Summary Table of Qualifying Property
In summary: Section 179 expensing is available for a broad range of tangible personal property, certain real property improvements (notably QIP and specific improvements to nonresidential real property), off-the-shelf software, and certain agricultural and storage structures, provided the property is acquired by purchase for active business use and is not otherwise excluded by statute or regulation.
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