Section 179 Expensing Limits for Real Estate Investors in 2024

Section 179 Expensing Limits and Real Estate: A Guide for Property Investors in 2024

As real estate investors, maximizing tax savings is always a priority. One of the most powerful tax tools available is the Section 179 deduction, which allows property investors to expense certain purchases in the year they are placed in service, rather than depreciating them over several years. This provision can significantly reduce your taxable income, especially if you’ve invested in new equipment or made qualifying property improvements.

In 2024, Section 179 expensing limits have been adjusted, creating new opportunities (and some limitations) for real estate investors. Whether you’re a landlord, syndicator, flipper, or wholesaler, understanding how to leverage these changes can help you make smarter tax planning decisions and optimize your investments.

What is Section 179 Expensing?

Section 179 of the Internal Revenue Code allows taxpayers to deduct the full or partial purchase price of qualifying assets that are used for business purposes, rather than depreciating them over the asset’s useful life. It’s primarily designed to encourage businesses, including real estate investors, to reinvest in equipment, machinery, or certain improvements to their properties.

For real estate investors, Section 179 is especially useful for deducting costs associated with equipment (such as computers, vehicles, or certain property improvements). The tax benefit lies in the ability to expense these items immediately rather than spreading out the deduction over multiple years, which accelerates the reduction in taxable income.

Changes to Section 179 Expensing in 2024

In 2024, the Section 179 deduction limit is set at $1.22 million, meaning investors can deduct up to this amount in qualified expenses for the year. This limit applies to equipment, certain property improvements, and other qualifying purchases. Additionally, there’s a phase-out threshold for businesses that invest more than $3.05 million in qualifying assets during the year, after which the deduction begins to phase out dollar-for-dollar.

Real estate investors should also note the vehicle limit for SUVs, which caps the deduction at $30,500. This is particularly relevant for landlords or investors who use vehicles for business purposes (such as managing multiple properties or real estate projects).

What Qualifies for Section 179 in Real Estate?

For property investors, not all purchases are eligible for the Section 179 deduction. However, many expenses related to operating and managing properties do qualify. Here’s a breakdown of what is typically eligible:

(A) Business Equipment: Computers, printers, security systems, and other technology that’s used in managing rental properties or real estate investments can be expensed under Section 179.

(B) Business Vehicles: If you purchase a vehicle for your real estate business, you may be able to deduct part or all of the cost, depending on the vehicle’s size and use. Larger vehicles such as SUVs and trucks often qualify, though deductions for luxury vehicles are subject to limits.

(C) Property Improvements: Certain improvements made to a non-residential property, such as HVAC systems, roofing, fire protection systems, and security systems, may also qualify for Section 179 deductions. These improvements can be expensed upfront instead of being depreciated over time.

(D) Office Furniture and Equipment: If you have an office from which you manage your real estate investments, furniture, office supplies, and equipment may be deductible under Section 179.

However, it’s important to note that residential rental properties themselves generally do not qualify for Section 179 deductions. The IRS limits the deduction to tangible personal property and specific improvements, meaning that while you can deduct office equipment and business vehicles, the actual building (if it’s residential) must still be depreciated over the standard 27.5 years.

Impact on Different Types of Real Estate Investors

Landlords and Property Investors

For landlords, Section 179 is particularly useful for deducting costs associated with running a property management business. For instance, if you own multiple rental properties and purchase equipment such as maintenance tools, security systems, or computers for tenant management, those items can be immediately expensed. Similarly, vehicles used to service rental properties—whether they are trucks for maintenance or SUVs for transportation—are partially deductible.

However, the deduction’s limitations on residential property improvements mean that most landlords will benefit more from Section 179 for operational expenses rather than capital improvements.

Syndicators

Syndicators who manage large commercial real estate projects can benefit from Section 179, especially for non-residential property improvements. When managing commercial real estate, improvements such as HVAC systems, fire protection systems, or roofing may be eligible for the Section 179 deduction, which can significantly reduce taxable income for both the syndicator and their investors.

For syndicators managing residential properties, the primary benefit of Section 179 would likely come from the operational side—deducting office equipment, vehicles, and business supplies used for managing the investment.

Flippers and Wholesalers

Flippers generally invest in short-term projects and sell properties within a year, making depreciation less relevant. However, if flippers operate a more substantial business, using Section 179 to expense vehicles, office equipment, or tools used in renovation projects can reduce taxable income in the year those items are placed in service.

Wholesalers, on the other hand, benefit from Section 179 primarily in the business operations realm. Since wholesalers deal in contract assignments rather than direct ownership of property, they may use Section 179 to deduct the costs of office equipment, computers, and vehicles used to conduct their wholesaling activities.

Best Practices for Leveraging Section 179 in 2024

Real estate investors should carefully plan their purchases to maximize the benefits of Section 179 expensing in 2024. Here are a few key strategies to consider:

1. Timing Your Purchases: To qualify for the Section 179 deduction, the equipment or property improvements must be purchased and placed in service during the 2024 tax year. This means that if you plan to make any large purchases—whether it’s a business vehicle or major property improvement—doing so before the year’s end will allow you to take advantage of the deduction immediately.

2. Using the Phase-Out Limit: If your total qualifying investments exceed $3.05 million, your Section 179 deduction will begin to phase out. If you anticipate significant capital expenditures, you may want to spread your purchases over two years to avoid losing the deduction.

3. Combining with Bonus Depreciation: While Section 179 allows for immediate expensing, bonus depreciation is another tool that lets you depreciate a larger portion of qualifying property. For example, if you exceed the Section 179 limit, you can still take bonus depreciation on other qualifying assets, ensuring that you maximize your tax deductions.

4. Consult a Tax Professional: Given the complexity of tax law, it’s essential to work with a tax professional who understands real estate. A qualified accountant or tax advisor can help you identify which purchases qualify for Section 179 and ensure you’re not missing any deductions.

The Section 179 deduction remains a valuable tool for real estate investors looking to reduce their tax liabilities and keep more of their profits. With the expensing limit set at $1.22 million in 2024, there’s ample opportunity for investors to deduct the cost of qualifying business expenses, from vehicles and equipment to certain property improvements.

Whether you’re a landlord upgrading your property’s security system, a syndicator managing a large commercial real estate project, or a wholesaler looking to deduct office expenses, Section 179 can provide significant tax relief. By timing your purchases wisely, understanding the limits, and working with a tax professional, you can make the most of this powerful tax provision.

As always, stay informed about changes to tax law and consult with a professional to ensure you’re leveraging every available tax-saving opportunity.