What happens if listed property is used 50% or less for business purposes?

When listed property is used 50% or less for business purposes, the IRS imposes certain restrictions on the ability to claim deductions associated with that property. Specifically, no Section 179 deduction or special depreciation allowance may be claimed. This is significant because both the Section 179 deduction and the special depreciation allowance serve to accelerate the tax benefits for businesses by allowing them to deduct a portion of the cost of qualifying property in the year the property is placed in service.

The reasoning behind this restriction relates to ensuring that deductions reflect genuine business use. If a property is used primarily for personal use (e.g., less than 50% business use), the IRS may consider that the property serves more personal than business purposes, warranting the disallowance of these benefits.

In contrast, if the property were used more than 50% for business, then it would qualify for these beneficial deductions, allowing businesses to recover costs more quickly and effectively. Understanding this distinction is crucial for accurate tax reporting and planning for anyone managing business assets.