Section 179 & Residential Rentals

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A frequent question asked by tax professionals is whether home furnishings such as washers, dryers, refrigerators, microwaves and the like, used as part of a residential rental, qualify for the Section 179 expense deduction.    

Sec. 179 generally applies to Sec. 1245 (personal tangible property), and the definition of Sec. 179 property specifically states that buildings and their structural components do not qualify for the Sec. 179 expense deduction. However, there have been recent exceptions to that rule, such as the inclusion of qualified leasehold improvements, qualified restaurant property, qualified retail improvements, off-the-self software, and most recently with the PATH Act, heating and air conditioning systems.  However, all of the exceptions apply to property used in an active trade or business. Residential rentals generally do not meet the requirements of an active trade or business (1) and therefore do not qualify for the Sec. 179 expense deduction.   

However, they may qualify to be expensed under routine maintenance for buildings (2), repairs undertaken contemporaneously with improvements (3) or the per-building safe harbor for qualifying small taxpayers (4).

 (1) Sec. 44(b)(7)(C)(iii), PL 98-369, 7/18/84 (at note to Code Sec. 1274) as amended by
Sec. 2, PL 98-612, 10/31/84 (at note to Code Sec. 1274)
(2) Code Sec. 263(a). (Reg. § 1.263(a)-3(i)(1)(i))
(3) Code Sec. 263(a). (Reg. § 1.263(a)-3(g))
(4) Code Sec. 263(a). (Reg. Sec. 1.263(a)-3(h))