Business income for Form 4562

I see, on my asset worksheet, the section179 remains in red, and it says "Should be blank unless this ....is qualified Section179 property, Either remove the section179 deduction or if qualified check YES to the the "Eligible Section 179 property" question."

I think this is probably disallowed under the same rules as section 179 for rental properties.

I do not usually take section179 because this then makes severe complications for differences in depreciation between the Federal and the State. In my case I would not take it, and if the client insisted I would do more research.

I use ProSeries, not Lacerte, so I'll skip over the software issue. But I don't see how there could be any depreciation related to gas lease income This from Kleinrock TaxExpert:

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A trade or business for this purpose is one for which business deductions are allowed, as discussed in Section 25.2. Thus, taxable income derived from property held for the production of income or from an activity not engaged in for profit is not taken into account in determining the taxable income limitation. The determination of whether a trade or business is actively conducted by the taxpayer is to be made from all the facts and circumstances. Reg. Section 1.179-2(c)(6).

OBSERVATION: Since the purpose of the active conduct requirement is to prevent a passive investor in a trade or business from deducting Section 179 expenses against taxable income derived from that trade or business, a taxpayer generally is considered to actively conduct a trade or business if the taxpayer meaningfully participates in the management or operations of the trade or business. A mere passive investor in a trade or business does not actively conduct the trade or business.

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Since rental income is by definition passive, I would say it's not included as business income.

I don't think JAJG is trying to claim depreciation as a deduction for gas lease income. Line 11 is how much business income do you have for purposes of determining how much Section 179 deduction is allowed this year on your entire return.

Yeah, I figured that out after I'd run my mouth for awhile. But passive income, which this is, is not considered trade or business income, IIRC, so it shouldn't be included in the Sec 179 base.

While the income is passive for IRC 469 purposes, it might be business income for 179 purposes. Some years ago (5 or 10) they changed the 179 rules to allow 179 deductions for tangible personal property used in Schedule E rental activities; as long as you met all the other income and asset rules. JALG I guess you need to research this.

I agree with Susan. I've got a client who has passive income from a passthrough entity that also passes out Sec 179 deductions. The passthrough income doesn't count for Sec 179 - but their rental property does. "That can't possibly be right" we said when Lacerte allowed it, then did the research to discover that it was.

Thank you, ladies. My education continues; I was totally unaware of that exception. I should get CPE credit for hanging out around here.

Archie, you're learning something even without CPE credit. I don't think many of us have sponsor numbers with NASBA or the various states! Happy holiday weekend.