Qualified Section 179 Real Property HELP!!

[sandigi]

Partnership form 1065 K1 line 12 has $2500 Section 179 deduction from a commercial rental property. The 2 partners installed a new HVAC unit. My software is not handling it and I am having a hard time figuring out where it goes first. Software says Section 179 is not allowed for a passive activity. have read instructions for the 1065 K-1, Form 4562 and Form 8582. After 2 days of trying to get this right, I am pulling my hair out!

I would appreciate any Help I can get.

[TaxGuyBill]

What software are you using?

Section 179 only applies to a "Trade or Business". If the Partnership took it, they must have made the decision that the activity rises to the level of a "Trade or Business". However, from what I have heard, many software programs don't handle it well (including my software, ProSeries). If I remember correct, in ProSeries I need to manually enter the business profit onto Line 11 of Form 4562 in order for the program to allow it.

However, you also mentioned Form 8282. Does the rental have a profit for the year? Or is the 8582 just showing that the current year profit is offsetting prior year losses?

[sandigi]

TaxGuyBill, Thank you for your fast response! I use Drake. Maybe a little more detail will allow you to help me.

Partnership has 2 rental properties. 1st property is residential. with net income of $2745
2nd property is commercial with net income of $3186
Net rental real estate income on K1 line 2 for the 2 properties is $5931

K1 Line 12 Section 179 deduction is $2500 from the commercial rental property. ($5000 for air conditioner split between 2 partners)

I thought I was doing this right but now I am wondering if I'm way off base.

Pub 5318 pg 4
TCJA modifies the definition of section 179 property to allow taxpayers to elect to include certain improvements made to nonresidential real property, including most improvement to a building’s interior, plus roofs and systems for heating, air conditioning, security and fire protection

At the 1040 level, there are 4 more rental properties, all with net income.

[TaxGuyBill]

So yes, *IF* the rentals rise the level of a "Trade or Business", Section 179 should be allowed. Or did YOU do the Partnership return?

Look at the Form 4562. Does it show the rental business income on Line 11? Does it also show the amount of the Section 179 (maybe on Lines 2, 8 and 9?)? If not, does Drake allow you to manually enter numbers on those lines?

[sandigi]

So yes, *IF* the rentals rise the level of a "Trade or Business", Section 179 should be allowed. Or did YOU do the Partnership return?

Look at the Form 4562. Does it show the rental business income on Line 11? Does it also show the amount of the Section 179 (maybe on Lines 2, 8 and 9?)? If not, does Drake allow you to manually enter numbers on those lines?

Thank you so much for your reply again. Yes I did the partnership return and the 2 partners manage the 2 properties and also vacant land being developed.

I read again the instructions for F1065 K1, F4562, and F8582. I don't believe the 8582 is required because there is overall gain. But I force printed it to see how the amounts are being handled and it looks right.

Today I did F 4562 (for the umpteenth time!!) and tied it to the K-1P. Finally I think it is right and hope you agree.

To answer your questions about F4562:
L2 is $3831 (the amount of all Sec 179 property placed in service by taxpayer)
$2500 is on Lines 6,8,9,12, and 22.


Line 11 is $25,411 from the "Section 179 Business Income Worksheet"
I'm not sure this line is right. I think it should be $38,713 (all his income less interest).
You asked if it showed the business rental income. The partnership k1 with the 2 rentals had income of $5931 so it is enough for the $2500 deduction.

Thanks again for your help. If you think I need to work on Line 11, would you please let me know?

[TaxGuyBill]

The first thing you need to determine is does this rental activity rise to the level of a "Trade or Business". Are you claiming the §199A deduction on this rental income (see Box 20 of the K-1 codes Z through AB)?

If so, then yes, Section 179 is allowed.

Have you looked at the "Section 179 Business Income Worksheet" to figure out where the numbers are coming from? It is quite possible it is NOT factoring in the rental income, as that isn't always "business" income.

I suspect this may be a software issue, so you may consider calling Drake for some guidance.


Hmmm, now I'm thinking the rental income might need a separate 4562 with only the rental income on it. I'm not positive that is the case, but the *IS* how it works on a personal tax return (a rental on page 1 of Schedule E would have a separate 4562 than a business on Schedule C because they are treated as two separate activities or businesses). But it all from one Partnership/K-1, so maybe there is only one with the 1040. I'm not sure.