These frequently asked questions and answers are provided for general information only and should not be cited as any type of legal authority. They are designed to provide the user with information required to respond to general inquiries. Due to the uniqueness and complexities of Indian law and federal tax law, it is imperative to ensure a full understanding of the specific question presented, and to perform the requisite research to ensure a correct response is provided. Are there special depreciation rules for qualified property placed in service on an Indian reservation? There are special rules that allow you to use shorter recovery periods to figure your depreciation deduction for qualified property placed in service on an Indian reservation after December 31, 2007, and by December 31, 2021 (Code Sec. 168(j)). What is considered to be qualified property? Property which is used predominately in the active conduct of a trade or business within an Indian Reservation and is 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property is considered to be qualified property. Real property you rent to others that is located on an Indian reservation is also eligible for the shorter recovery periods. (Code Sec. 168(j)) What property is not considered to be qualified property? The following properties are not qualified property: Property used or located outside an Indian reservation on a regular basis. ** Property acquired directly or indirectly from certain related persons. Property placed in service for purposes of conducting or housing certain gaming activities. Qualified property also does not include any property you must depreciate under the Alternative Depreciation System (ADS). Property placed in service after December 31, 2021 (Code Sec. 168(j)). ** Property in this category does not apply to qualified infrastructure property located outside the reservation that is used to connect with qualified infrastructure within the reservation. What is the recovery period for qualified property? See Publication 946, How to Depreciate Property PDF, for more information about depreciation, including the special rules that apply to property used on Indian reservations. Property class Recovery period 3-year 2 years 5-year 3 years 7-year 4 years 10-year 6 years 15-year 9 years 20-year 12 years Non-residential real property 22 years When is there an increase in the section 179 deduction? Section 1397A increases the section 179 deduction if your business qualifies as an "enterprise zone business." The increase can be as much as $35,000. The increased section 179 deduction applies to "qualified zone property" you place in an empowerment zone. Note: The Empowerment Zone Employment Credit was extended through the end of 2025. (Rev. Proc. 2021-18) What is an "enterprise zone business"? A corporation, partnership, or sole proprietorship is an enterprise zone business for tax years beginning after August 4, 1997, if all of the following statements are true for the tax year: Every trade or business of the corporation or partnership is the active conduct of a qualified business within an empowerment zone (this rule does not apply to the sole proprietorship); At least 50% of its total gross income is from the active conduct of a qualified business within a zone; A substantial part of the use of its tangible property is within a zone; A substantial part of its intangible property is used in the active conduct of the business; A substantial part of the employees' services are performed within a zone; At least 35% of the employees are residents of an empowerment zone (this rule does not apply to businesses in the DC Zone); and Less than 5% of the average of the total unadjusted basis of the property owned by the business is from: certain financial property, or collectibles not held primarily for sale to customers. “(Code Sec. 1397C) What is a "qualified business"? A qualified business is generally any trade or business except one that consists primarily of the development or holding of intangibles for sale or license. For rentals to others of real property or tangible personal property, see Publication 946, How to Depreciate Property PDF. (Code Sec. 1397C(d)) What is the maximum section 179 dollar limit for certain qualified zone property placed in service by an enterprise zone business? (updated Nov. 8, 2024) The total cost of section 179 property that you can deduct for a tax year generally cannot be more than the maximum section 179 dollar limit. However, if you place qualified zone property in service during the year this maximum dollar limit is increased by the smaller of the following amounts (Section 1397A(a)(1)): $35,000, or the cost of section 179 property that is qualified zone property you placed in service during the year. See Publication 946, How to Depreciate Property PDF. Is there any investment limit for the increased section 179 deduction? For each dollar of business cost over $200,000 for section 179 property placed in service in a tax year, the maximum dollar limit is reduced by one dollar (but not below zero). However, take only one-half of the cost of section 179 property that is qualified zone property into account when reducing the maximum dollar amount (Section 1397A(a)(2)). The property must be placed in service before January 1, 2021.
