What Property Qualifies? Words you may need to know (see Glossary): Adjusted basis Basis Class life Structural components Tangible property To qualify for the section 179 deduction, your property must meet all the following requirements. It must be eligible property. It must be acquired for business use. It must have been acquired by purchase. It must not be excepted property. The following discussions provide information about these requirements. Eligible Property To qualify for the section 179 deduction, your property must be one of the following types of depreciable property. Tangible personal property. Other tangible property (except buildings and their structural components) used as: An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services, A research facility used in connection with any of the activities in (a) above, or A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities. Single purpose agricultural (livestock) or horticultural structures. Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum. Tangible personal property. Tangible personal property is any tangible property that is not real property. It includes the following property. Machinery and equipment. Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs. Gasoline storage tanks and pumps at retail service stations. Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals. Land and land improvements, such as buildings and other permanent structures and their components, are real property, not personal property. Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences. The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. For example, property may not be tangible personal property for the deduction even if treated so under local law, and some property (such as fixtures) may be tangible personal property for the deduction even if treated as real property under local law. Single purpose agricultural (livestock) or horticultural structures. A single purpose agricultural (livestock) or horticultural structure is qualifying property for purposes of the section 179 deduction. Agricultural structure. A single purpose agricultural (livestock) structure is any building or enclosure specifically designed, constructed, and used for both the following reasons. To house, raise, and feed a particular type of livestock and its produce. To house the equipment, including any replacements, needed to house, raise, or feed the livestock. For this purpose, livestock includes poultry. Single purpose structures are qualifying property if used, for example, to breed chickens or hogs, produce milk from dairy cattle, or produce feeder cattle or pigs, broiler chickens, or eggs. The facility must include, as an integral part of the structure or enclosure, equipment necessary to house, raise, and feed the livestock. Horticultural structure. A single purpose horticultural structure is either of the following. A greenhouse specifically designed, constructed, and used for the commercial production of plants. A structure specifically designed, constructed, and used for the commercial production of mushrooms. Use of structure. A structure must be used only for the purpose that qualified it. For example, a hog pen will not be qualifying property if you use it to house poultry. Similarly, using part of your greenhouse to sell plants will make the greenhouse nonqualifying property. If a structure includes work space, the work space can be used only for the following activities. Stocking, caring for, or collecting livestock or plants or their produce. Maintaining the enclosure or structure. Maintaining or replacing the equipment or stock enclosed or housed in the structure. Property Acquired for Business Use To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify. Partial business use. When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. Use the resulting business cost to figure your section 179 deduction. Example. May Oak bought and placed in service an item of section 179 property costing $11,000. She used the property 80% for her business and 20% for personal purposes. The business part of the cost of the property is $8,800 (80% × $11,000). Property Acquired by Purchase To qualify for the section 179 deduction, your property must have been acquired by purchase. For example, property acquired by gift or inheritance does not qualify. Property is not considered acquired by purchase in the following situations. It is acquired by one member of a controlled group from another member of the same group. Its basis is determined either-- In whole or in part by its adjusted basis in the hands of the person from whom it was acquired, or Under stepped-up basis rules for property acquired from a decedent. It is acquired from a related person. Related persons. Related persons are described in chapter 1 in the discussion on pre-1987-use property under Can You Use MACRS To Depreciate Your Property. However, to determine whether property qualifies for the section 179 deduction, treat as an individual's family only his or her spouse, ancestors, and lineal decendants and substitute "50%" for "10%" each place it appears. Example. Ken Larch is a tailor. He bought two industrial sewing machines from his father. He placed both machines in service in the same year he bought them. They do not qualify as section 179 property because Ken and his father are related persons. He cannot claim a section 179 deduction for the cost of these machines. Excepted Property Even if the requirements explained in the preceding discussions are met, you cannot elect the section 179 deduction for the following property. Certain property you lease to others (if you are a noncorporate lessor). Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging. Air conditioning or heating units. Property used predominantly outside the United States (except property described in section 168(g)(4) of the Internal Revenue Code). Property used by certain tax-exempt organizations. Property used by governmental units. Property used by foreign persons or entities. Leased property. Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. (This rule does not apply to corporations.) However, you can claim a section 179 deduction for the cost of the following property. Property you manufacture or produce and lease to others. Property you purchase and lease to others if both the following tests are met. The term of the lease (including options to renew) is less than half of the property's class life. For the first 12 months after the property is transferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property. Property used for lodging. Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. However, this does not apply to the following types of property. Nonlodging commercial facilities that are available to those not using the lodging facilities on the same basis as they are available to those using the lodging facilities. Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients. Any certified historic structure to the extent its basis is due to qualified rehabilitation expenditures. Any energy property. Energy property. Energy property is either of the following types of equipment. Equipment that uses solar energy to generate electricity, to heat or cool a structure, to provide hot water for use in a structure, or to provide solar process heat. Equipment used to produce, distribute, or use energy derived from a geothermal deposit. For electricity generated by geothermal power, this applies only to its production, distribution, or use up to (but not including) the electrical transmission stage. If you did not construct, reconstruct, or erect the equipment, the original use of the property must begin with you. The property must meet the performance and quality standards, if any, prescribed by Income Tax Regulations in effect at the time you get the property. Energy property does not include any property that is public utility property as defined by section 46(f)(5) of the Internal Revenue Code (as in effect on November 4, 1990).