Types of Eligible Section 179 Assets

Table of Contents

Types of Eligible Section 179 Assets, the Section 179 qualifying asset rules need to be followed to avoid any issues with the IRS. The IRS clearly lays out which assets qualify for the deduction, and which do not, making it critical you differentiate between the two.

What are the Qualification Rules?

The IRS has listed out four rules that must be met in order to be qualifying property for the Section 179 tax deduction. The property must be eligible property, bought for business use, bought through a purchase sale, and not be specifically excluded property. These qualifications need to be met in order to take the Section 179 tax deduction. If you know your asset does not meet the above criteria, the eligible asset rules will not matter since no deduction will be allowed.

What Types of Assets are Eligible for Section 179?

The first type of eligible property is tangible personal property. This is the most common form of fixed assets your business might have and includes machinery and equipment, office furniture and equipment, gasoline storage tanks and pumps, livestock, and portable air conditioners and heaters. Most assets you purchase in the ordinary course of business will fall into this category.

The next category of an eligible property that the IRS lays out is called other tangible property. This includes the major components of manufacturing, production, extraction, or waste disposal operations and the storage of fungible commodities and research facilities.

These assets include everything that can be physically removed from the building or premises, such as a piece of machinery within a building. There are many equipment financing options, such as through Capital for Business, that can help you secure the financing and equipment you need.

If you run a farm or other agricultural center, the livestock can be considered assets. Livestock such as sheep, horses, goats, pigs, and cattle all give way to a Section 179 deduction. These animals are considered tangible personal property, which is why they were listed above, but the IRS likes to include them as a separate category because special regulations are involved.

The livestock cannot also be listed in the inventory, there must be a depreciable basis and immature livestock are placed in service when they can be worked or bred. Remember that the Section 179 deduction is based on when the asset is placed in service, making it critical to document when the immature animal is ready for work or breeding purposes.

Storage facilities that are related to the distribution of petroleum are also listed as eligible property according to the IRS. There is not much guidance surrounding these storage facilities, but the IRS does explain that the storage facilities cannot be a part of the building and other structural components. For example, the storage facilities need to be able to be removable from the premises. Think removable sheds and items of that sort.

With recent technological advancements, the IRS has added an off-the-shelf computer software category for eligible property. This is computer software that is readily available for purchase by the general public and performs certain features to the computer, such as virus software. The software must also have a nonexclusive license and has not been substantially modified. A database software program is not considered an off-the-shelf software program.

The final category that the IRS lays out is qualified real property. Usually, real property, such as buildings and land, are specifically excluded from the Section 179 deduction. However, improvements to nonresidential real property can qualify for the deduction.

This category of assets is generally referred to as leasehold improvements and can include new roofs, HVAC components, fire protection systems, and security systems. Building additions, elevators, escalators, and internal structure changes are specifically excluded from eligible qualified real property.

What Types of Assets are Excluded from Section 179?

All of the above categories can allow you to take the Section 179 deduction, but there are a few excluded items to watch out for. The first excluded item is land and land improvements. The land is a non-depreciable asset for book and tax purposes, making it no surprise that it is excluded from the Section 179 deduction. Land improvements like bridges, docks, and fences are not eligible assets.

Additionally, leased property, property outside of the United States, property used by tax-exempt organizations, and property used by governments or foreign people with a lease of fewer than 6 months are all excluded from the deduction. If you are wondering if an asset qualifies for Section 179, odds are it doesn’t.

Conclusion: