What Is the Depreciation Exception Under Section 179?

Section 179 of the tax code allows business owners to deduct the full cost of certain long-term personal assets for one year without depreciation. This allowance is subject to an annual ceiling, which may be changed periodically. The 2017 cap was $500,000[MOU7] . It’s also limited to the total of your profit from all your businesses and your salary (if you have one).

Unfortunately, this section is nearly useless for landlords due to its various rules and exceptions. You may be able to use it only for personal property not included in your rental property, such as computers, office equipment, office furniture, and business vehicles. In addition, Section 179 property must be used for your business more than half the time, and you must have purchased the property in the year you claim the Section 179 deduction.

Here are some examples of depreciation exception under this section:

  • Advertising: In order to find electricians, gardeners, plumbers, or others to help maintain your property, you may need to place advertisements in newspapers or elsewhere. Or you may choose to place ads to find tenants for vacant units. The cost of ads for these purposes is tax deductible.

  • Wages and fees: You can deduct "reasonable" wages paid to people who help you maintain your property. You can also deduct fees paid to professionals like lawyers, architects, energy-efficiency consultants, or accountants.

  • Property taxes and local service charges: As a landlord, in addition to your annual property tax deduction, you can also deduct any local taxes you pay to maintain your streets, sidewalks, sewage systems, or other community benefits. You also can deduct charges you pay for services such as water and trash collection for your rental units.

  • Expenses for rental items: You may deduct the cost of renting furniture, appliances, or other items for your tenants’ use. The costs that you spend to maintain your property, such as lawn mowers or carpet cleaning machines, may also be deducted.

  • Insurance premiums: You may deduct the cost of premiums for the insurance you buy, at least partially, if you purchase kinds of insurance for the purpose of protecting your investment in your property.

  • Travel and transportation: You may need to travel locally or outside your area to collect rent or manage your property, and these types of costs are deductible.

  • Utilities: The cost of providing heat, water, gas and/or electricity for your tenants is deductible, as well as the cost of installing an extra telephone to conduct property-related business in the part of the house in which you live.

  • Outdoor painting: From time to time, you can deduct the cost of painting your property to attract tenants and protect the building, at least partially.

  • Loss from casualties or thefts: Deducting losses resulting from a theft or from damage, destruction, or loss of property caused by a "sudden, unexpected, or unusual event" is also allowed by IRS regulations. Note that you cannot deduct the amounts reimbursed through your insurance coverage. When you take this deduction, you must separately report losses related to the portion of the unit you rent and the portion of the unit you live in.

  • Tax preparation: The costs incurred to seek help from a reliable tax professional when you begin preparing income tax returns may be deducted as long as you report them for the year in which the tax return is prepared. For example, if in 2019 you pay an accountant to prepare your 2018 income tax return, you may be able to deduct their fees on your 2019 return.