Are there IRS restrictions on using Section 179 or bonus depreciation for non-conventional metal steel buildings?
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There are no IRS restrictions that categorically prohibit the use of Section 179 expensing or bonus depreciation for non-conventional metal steel buildings, but the eligibility of such buildings for these accelerated cost recovery provisions depends on how the building is classified for tax purposes and how it is used in the taxpayer’s business.
1. Section 179 Expensing
General Rule:Section 179 allows taxpayers to expense the cost of qualifying property placed in service during the tax year, subject to annual limits. However, not all buildings or structures qualify.
Eligible Property:Section 179 property generally includes:- Tangible personal property (to which section 168 applies)- Certain qualified real property (see below)- Off-the-shelf computer software
Buildings and Structures:- General Rule: Buildings and their structural components are not eligible for Section 179 expensing. This includes most conventional and non-conventional buildings, such as metal steel buildings, if they are considered real property or structural components.- Exception—Qualified Real Property: Section 179 does allow expensing for certain "qualified real property," which includes: - Qualified improvement property (QIP) as defined in section 168(e)(6) - Certain improvements to nonresidential real property placed in service after the property was first placed in service, specifically: roofs, HVAC, fire protection and alarm systems, and security systems.
Metal Steel Buildings:- If the metal building is a structure (e.g., a warehouse, barn, or storage facility) and is considered a building or a structural component, it is generally not eligible for Section 179 expensing.- However, if the building is a "single-purpose agricultural or horticultural structure" (such as a livestock barn or greenhouse meeting the requirements of section 168(i)(13)), it may qualify for Section 179 expensing.- If the building is a "storage facility (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum," it may also qualify.
Components and Equipment:- Equipment, machinery, and certain interior improvements (such as HVAC, fire protection, or security systems) installed in a metal building may be eligible for Section 179 expensing if they meet the definition of qualified real property or tangible personal property.
2. Bonus Depreciation (Section 168(k))
General Rule:Bonus depreciation is available for "qualified property," which includes:- Tangible property depreciated under MACRS with a recovery period of 20 years or less- Computer software- Water utility property- Qualified improvement property (QIP)- Certain plants bearing fruits and nuts
Buildings and Structures:- Most buildings (including metal steel buildings) are considered nonresidential real property (39-year recovery period) or residential rental property (27.5-year recovery period) and are not eligible for bonus depreciation because their recovery period exceeds 20 years.- Exception—Qualified Improvement Property (QIP): Improvements to the interior of nonresidential buildings (excluding enlargements, elevators/escalators, and internal structural framework) are eligible for bonus depreciation if they meet the definition of QIP and have a 15-year recovery period.
Metal Steel Buildings:- The building itself (as a structure) is generally not eligible for bonus depreciation.- However, certain components or improvements to the building (such as QIP) may be eligible.- If the metal building is a "single-purpose agricultural or horticultural structure" (10-year property), it may be eligible for bonus depreciation because it has a recovery period of 20 years or less.
3. Cost Segregation and Componentization
- Taxpayers may use a cost segregation study to identify and separate components of a building that qualify as tangible personal property (e.g., certain electrical, plumbing, or HVAC systems, or non-structural elements) and depreciate them over shorter recovery periods, making them eligible for Section 179 or bonus depreciation.
- The IRS recognizes cost segregation as a valid method for identifying eligible property, provided the study is well-documented and follows established legal and engineering principles.
4. Summary Table
5. Key Restrictions and Considerations
- Buildings and structural components are generally not eligible for Section 179 or bonus depreciation.
- Certain improvements (QIP, roofs, HVAC, fire protection, security systems) to nonresidential real property may be eligible.
- Single-purpose agricultural or horticultural structures and certain storage facilities may be eligible.
- Cost segregation can help identify eligible components within a building.
- Land improvements (e.g., fencing, paving) may be eligible for bonus depreciation and Section 179 if they have a recovery period of 15 or 20 years.
In summary: There are no IRS restrictions that specifically prohibit Section 179 or bonus depreciation for non-conventional metal steel buildings, but the building itself is generally not eligible unless it meets the definition of a single-purpose agricultural or horticultural structure, a qualified improvement property, or a storage facility for petroleum products. Components and improvements to the building may be eligible if they meet the requirements for Section 179 or bonus depreciation. Cost segregation studies can help identify eligible property within a metal building,,,.
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