Section 179 for Commercial Real Estate OBBB

Forum|Forum|4 months ago
February 9, 2026
1 reply
9 views

Has anybody prepared a form 1065 for a commercial real estate and tried to use section 179 for a qualified improvement property? My understanding is that this is allowed under the new tax law.

When I enter the code J5, the program allows the section 179 deduction box to be filled in, and everything functions properly on the balances sheet. However, it does not flow through to the individual K1s. This seems to be because all of the income is on the form 8825 and there is no income on the face of the form 1065 (Form 8825 net income is not flowing to the "Depreciation Options" Page - Line 3a). So, the program is not allowing the section 179 due to income limitation. Is this a flaw in the program or am I missing something?

ProSeries Professional

T

TaxGuyBill

Level 15

Section 179 is only for a "trade or business" and there is also a restriction for "noncorporate lessors". And of course there also needs to be a profit.

First verify that the rental rises to the level of a "trade or business" and check if the "noncorporate lessors" rule affects anything. And of course verify that is a profit that can use Section 179.

ProSeries automatically assumes a rental is NOT a "trade or business", so if your rental qualifies, you need to:

Manually go to the Form 4562,
Click (or double-click?) line 11,
Then enter the additional business income (from the rental profit).

J

JeromeLeventhalAuthor

Level 4

Thank you for your reply. I understood that to be the case in the past. However, I have been reading that there was a change in the OB3 that allowed it for qualified commercial real estate improvements. Here is a snip from one of those sources:

"Qualifying Commercial Real Estate Improvements"

Section 179 is particularly valuable for commercial owners because it covers several specific real property improvements that often do not qualify for other accelerated methods:

Qualified Improvement Property (QIP): Any interior improvement to a nonresidential building after it was first placed in service. This excludes structural framework, building enlargements, and elevators/escalators.
Roofing: Full replacement or major upgrades to commercial roofs.
HVAC Systems: Heating, ventilation, and air conditioning equipment.
Fire Protection & Security: Alarm systems, fire suppression, and building security/monitoring systems.

T

TaxGuyBill

Level 15

Those changes are not from the OB3, they have been around since 2018-ish. The apply to all business real estate, but not only rental real estate.

Yes, those rules apply, but they don't override the other rules, including being a "trade or business", meeting the noncorporate lessor rule, and having a profit.

As a commercial property, it is quite possible it does rise to the level of a "trade of busines" (you'll need to make your own determination about that; some tax professional are VERY lenient and classify MOST rentals as a "trade or business"). If it does, you can follow the directions I gave about line 11 of Form 4562 (after checking the noncorporate lessor rule).

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