Electing sec. 179 for property used in a rental activity.

• Author: Flynn, Maura P.
• Position: Brief Article

For property placed in service after 1990, the definition of what constitutes eligible Sec. 179 property has changed. The pre-1991 definition of Sec. 179 property referred to Sec. 38. For post-1990 property, the Code refers to Sec. 1245(a)(3) for the definition. As a result of this change, the availability of expensing versus capitalizing certain tangible personal property used in a rental activity has been broadened.

Under pre-1991 law, Sec. 38 (and thus Sec. 179) property included tangible personal property for which depreciation was allowable. However, Regs. Sec. 1.48-1(h)(1)(i) provided that "Sec. 38 property" did not include property used predominantly to furnish lodging during the tax year. Such property specifically included beds, refrigerators, ranges and other equipment. An exception in Regs. Sec. 1.48-1(h)(2)(ii) allowed the investment tax credit and the Sec. 179 deduction for hotels, motels and other transient lodging generally lasting less than 30 days for any rental period. The typical rental property did not qualify for this...