Discussion:2 LLC's one passive, one not, and Sec. 179

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Discussion Forum Index --> Tax Questions --> 2 LLC's one passive, one not, and Sec. 179

Ksnoopytax (talk|edits) said:

15 March 2008
My client has a very profitable single member LLC which again this year has net income in excess of 1/2 million. This year he decided to start a second single member LLC and labled it a "holding company." He purchased $200,000 worth of equipment in the new LLC and started receiving lease payments from the first profitable LLC. From what i've researched so far, it looks like that since the new LLC he started is receiving lease payments it would be considered a passive activity and section 179 would not be allowed. Can anyone give me some insight if they agree with this assessment or if there is a way around this?

CalifCPA (talk|edits) said:

15 March 2008
Sec. 179 is allowed if the taxpayer is engaged in the active conduct of a trade or business -- even if the activity is a passive activity. This appears to be property held for the production of income -- not trade or business property.

Ksnoopytax (talk|edits) said:

16 March 2008
I think Reg. 1.179-1(i)(1) covers this from my research. It states:

(i) Leasing of section 179 property.

1.179-1(i)(1)(1) In general. A lessor of section 179 property who is treated as the owner of the property for Federal tax purposes will be entitled to the section 179 expense deduction if the requirements of section 179 and the regulations thereunder are met. These requirements will not be met if the lessor merely holds the property for the production of income. For certain leases entered into prior to January 1, 1984, the safe harbor provisions of section 168(f)(8) apply in determining whether an agreement is treated as a lease for Federal tax purposes.

The taxpayer is the owner of the property, so I would think he could take Sec. 179?

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