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Publication 946

Chapter 2
Electing the Section 179 Deduction(p14)


You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. This is the section 179 deduction. You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions.
Estates and trusts cannot elect the section 179 deduction.
This chapter explains what property does and does not qualify for the section 179 deduction, what limits apply to the deduction (including special rules for partnerships and corporations), and how to elect it. It also explains when and how to recapture the deduction.


Useful items

You may want to see:

 537  Installment Sales
 544  Sales and Other Dispositions of Assets
 954 Tax Incentives for Distressed Communities
Form (and Instructions)
 4562 : Depreciation and Amortization
 4797 : Sales of Business Property
See chapter 6 for information about getting publications and forms.

What Property Qualifies?(p15)


Words you may need to know (see Glossary)

To qualify for the section 179 deduction, your property must meet all the following requirements.
The following discussions provide information about these requirements and exceptions.

Eligible Property(p15)

To qualify for the section 179 deduction, your property must be one of the following types of depreciable property.
  1. Tangible personal property.
  2. Other tangible property (except buildings and their structural components) used as:
    1. An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services;
    2. A research facility used in connection with any of the activities in (a) above; or
    3. A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities.
  3. Single-purpose agricultural (livestock) or horticultural structures. See chapter 7 of Pub. 225 for definitions and information regarding the use requirements that apply to these structures.
  4. Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum.
  5. Off-the-shelf computer software.
  6. Qualified section 179 real property (described below).

Tangible personal property.(p16)

Tangible personal property is any tangible property that is not real property. It includes the following property.
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.

Off-the-shelf computer software.(p16)

Off-the-shelf computer software is qualifying property for purposes of the section 179 deduction. This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. It includes any program designed to cause a computer to perform a desired function. However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software.

Qualified section 179 real property.(p16)

You can elect to treat certain qualified real property you placed in service during the tax year as section 179 property. If this election is made, the term "section 179 property" will include any qualified real property that is: For more information, see Special rules for qualified section 179 real property, later.
Qualified improvement property.(p16)
Generally, this is any improvement to an interior portion of a building that is nonresidential real property if the improvement is placed in service after the date the building was first placed in service.
Also, qualified improvement property does not include the cost of any improvement attributable to the following:

Property Acquired for Business Use(p16)

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.(p16)

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.


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(p16)

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.
  1. It is acquired by one component member of a controlled group from another component member of the same group.
  2. Its basis is determined either—
    1. In whole or in part by its adjusted basis in the hands of the person from whom it was acquired, or
    2. Under the stepped-up basis rules for property acquired from a decedent.
  3. It is acquired from a related person.

Related persons.(p17)

Related persons are described under Related persons, earlier. 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 descendants and substitute "50%" for "10%" each place it appears.


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.