Who is eligible to benefit from Section 179 deduction rules in 2024?
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Eligibility for the Section 179 deduction in 2024 is governed by several specific requirements under the Internal Revenue Code and related regulations. Here is a comprehensive summary of who is eligible to benefit from Section 179 expensing in 2024, including key limitations and exceptions:
1. Eligible Taxpayers
- Individuals, Partnerships, and Corporations: Most taxpayers engaged in an active trade or business can claim the Section 179 deduction, including individuals (sole proprietors), partnerships, and corporations.
- S Corporations and Their Shareholders: S corporations can elect the deduction, and the limits apply at both the entity and shareholder level.
- Partnerships and Their Partners: Partnerships can elect the deduction, and the limits apply at both the partnership and partner level.
- Grantor Trusts: Grantor trusts may be eligible, but non-grantor trusts and estates are not (see below).
Not Eligible:
- Estates and Non-Grantor Trusts: Section 179 specifically does not apply to estates and trusts (other than grantor trusts). If a trust or estate is a partner or S corporation shareholder, it cannot claim its allocable share of Section 179 expense; instead, the entity may claim regular depreciation on that portion.
2. Eligible Property
To qualify, the property must meet all of the following:- Section 179 Property: Tangible personal property (to which MACRS applies), certain computer software, and certain qualified real property (see below).- Acquired by Purchase: The property must be acquired by purchase for use in the active conduct of a trade or business. Property acquired by gift or inheritance does not qualify.- Placed in Service in 2024: The property must be placed in service during the tax year for which the deduction is claimed.- Active Use in Trade or Business: The property must be used more than 50% in the active conduct of a trade or business during the year.
Qualified Real Property:
- Section 179 allows expensing of certain qualified real property, including:
- Qualified improvement property (QIP)
- Certain improvements to nonresidential real property placed in service after the building was first placed in service, such as roofs, HVAC, fire protection and alarm systems, and security systems.
Not Eligible:
- Land and Land Improvements: Land and most land improvements (e.g., swimming pools, parking lots, bridges) do not qualify, except for certain agricultural improvements like fences and field drainage tile.
- Property Used for Lodging: Property used predominantly to furnish lodging or in connection with lodging (with some exceptions) does not qualify.
- Property Used Outside the U.S.: Generally, property used mainly outside the United States is not eligible, with limited exceptions.
- Property Used by Tax-Exempt Organizations or Governmental Units: Unless used in a taxable unrelated trade or business or leased for less than six months.
- Property Leased by Noncorporate Lessors: Noncorporate lessors generally cannot claim Section 179 unless they meet specific requirements (e.g., they manufactured the property or the lease is short-term and certain expense thresholds are met).
3. Dollar and Investment Limits for 2024
- Maximum Deduction: $1,220,000 for 2024.
- Phase-Out Threshold: The deduction is reduced dollar-for-dollar by the amount by which the cost of Section 179 property placed in service during the year exceeds $3,050,000. No deduction is allowed if qualifying purchases exceed $4,270,000.
4. Business Income Limitation
- The Section 179 deduction cannot exceed the taxpayer’s aggregate taxable income from the active conduct of any trade or business during the year. Any excess can be carried forward to future years.
5. Special Rules and Limitations
- SUV Limitation: For certain SUVs (gross vehicle weight over 6,000 lbs but not more than 14,000 lbs), the maximum Section 179 deduction is $30,500 for 2024.
- Controlled Groups: All members of a controlled group (more than 50% common ownership) are treated as a single taxpayer for purposes of the Section 179 limits.
- Recapture: If the business use of the property falls to 50% or less during the recovery period, a portion of the deduction may be recaptured as ordinary income.
6. Summary Table of Who Is Eligible
In summary: Section 179 expensing in 2024 is available to most taxpayers actively engaged in a trade or business, including individuals, partnerships, and corporations, for qualifying property placed in service during the year, subject to dollar, investment, and business income limits. Estates and non-grantor trusts, as well as certain lessors and property types, are not eligible. Special rules apply to controlled groups, SUVs, and property used outside the U.S. or by tax-exempt/governmental entities.
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