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Sec. 179 for Assets Leased Out

Posted by taxguru on December 16, 2007

Q:

Subject: Section 179

Tax Guru:

I have a circumstance regarding section 179 and am a little confused.  A client of mine bought 2 medium sized trucks weighing over 6,000 lbs. each for $113,000.  He bought them personally and rented it to his business!  Would there be any circumstance that he could take section 179 deduction? 

I have done research under codes and publications and do not specify this situation.  The descriptions and examples are very vague.  Thank you for all of your help.

A:

I recall posting an email about this on my blog a while ago, but I can’t seem to locate it.

The rules for claiming Section 179 for assets that are to be leased out have been summarized as follows in the QuickFinder Depreciation Handbook:

Leased property. For noncorporate taxpayers, leased property is not eligible for Section 179 expense, unless:

1)     The taxpayer manufactures (or produces) the property to lease to others.

2)     The taxpayer purchases the property to lease to others and both the following tests are met:

  The term of the lease (including options to renew) is less than 50% of the property’s class life.

  For the first 12 months after the property is transferred to the lessee, the total business deductions on the property exceed 15% of the property’s rental income.

Basically, the Section 179 is really intended to benefit the owners of assets who actually use them in the conduct of a business.  If your client can set up the leases of his trucks so as to comply with the above requirements, such as short term lease time frames and his paying some of the maintenance costs, he should be able to claim Section 179 deductions for them.

Good luck.  I hope this helps.

Kerry Kerstetter

 

 

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