Q:

Subject: Section 179

 

If I purchase equipment for the sole purpose of leasing or renting it to my customers is this equipment "Qualifying Property"?  It would be machinery

and motor scooters.

The reason I ask is that you say "Nonqualifying Property:

* Property held for the production of income (investment property, most rentals).

most rentals is vague.  If rental is my business would I my personal property I rent to others be "Qualifying Property" or "NonQualifying Property"

Also I'am a small minority owned business.

Thank for any help you might have.

A:

You should really be working with your own professional tax advisor on matters such as this. 

Whether your scooters qualify for Section 179  depends on how long the rental periods are.

The following quote from the Depreciation QuickFinder Handbook spells it out very well.

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

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

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

2.  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

This rule does not apply to corporations."


In your particular situation, this means that if you are leasing the scooters for less than 2.5 years per renter, and you are paying the maintenance costs, you should be eligible to claim Section 179.  If you are renting on a per day or per hour basis, you would definitely qualify.  If you are leasing for several years at a time and the lessees has to pay all of the maintenance costs, Sec. 179 wouldn't apply.

Of course, the amount of actual Section 179 deduction will be phased out if you place into service more than $430,000 of new qualifying assets during 2006.

I hope this helps.  A tax pro can better apply these rules to your unique circumstances.

Good luck.

Kerry Kerstetter

Follow-Up:

Thank you for the reply and info.

 

 

Labels: 179

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/06/2006 12:31:00 PM Send this post: