SECTION 179 IMMEDIATE EXPENSE DEDUCTION AND FOREIGN INVESTORS
The Expansion of 26 U.S.C.A. Section 179 by the One Big Beautiful Bill Act of 2025 has caught domestic and international business executives and investors’ attention. One key question is who qualifies for the immediate expense deduction. Section 179 does not make a distinction between foreign and domestic or citizen or noncitizen. The One Big Beautiful Bill Act of 2025 did not change that. Let us take a review of the basic Section 179 qualifying factors:
Under Internal Revenue Code Section 179, a taxpayer may elect to deduct, up to a certain amount, all or part of the cost of certain qualifying property in the tax year the property is placed in service. The Code Section 179 election is made on an original or amended Form 4562, Depreciation and Amortization (including Information on Listed Property), and attached to the tax return. Qualifying taxpayers are individuals, limited liability companies, partnerships and corporations. Nonprofit organizations, estates and trust are not qualifying taxpayers for the purposes of Section 179. To qualify for Internal Revenue Code Section 179 immediate expense deduction, the property must meet all of the following requirements: (a) the property must be eligible property, (b) the property must be acquired for business use, and (c) the property must be acquired by purchase (note that this means the property cannot be by gift or inheritance).
The One Big Beautiful Bill Act (OBBBA) of 2025 increased the immediate deduction amount to $2,500,000 for qualified property placed in service after December 31, 2024, and the OBBBA increased the reduction amount to $4,000,000 (this is the ceiling amount.)
Section 179 deductions are generally available for taxpayers who are actively engaged in a trade or business. The deduction applies to property used in an active trade or business, but it does not apply to property held for investment. This is the critical factor in evaluating whether foreign investors could qualify for the Section 179 immediate expense deduction. Let’s take a closer look at the OBBBA Section 179 expansion or possible implications on E-1, E-2, L-1 and EB-5 foreign visa holders:
Nonimmigrant Visa Holders: E-1, E-2 and L-1 Visa Holders and Section 179:
Under 26 U.S.C.A. Section 179(1), qualifying property must be acquired by purchase for use in the active conduct of a trade or business. The deduction is limited by the taxpayer’s taxable income derived from the active conduct of a trade or business during the taxable year. Nonimmigrant visa holders, including E-1, E-2 and L-1 visa holders, may claim the Section 179 immediate expense deduction if they actively conduct a trade or business in the United States and meet the income limitations. U.S. tax law does not impose restrictions based on immigration status of the taxpayer. Section 179, instead focus on the nature of the business activity and the property acquired. U.S. immigration law requires that E-1 and E-2 visa holders engage in substantial trade or investment activities in the United States. For E-1 visa holders, trade must be substantial and principally between the United States and the treaty country pursuant to 22 C.F.R. Section 41.51.(2). In fact, the Immigration and Nationality Act (INA) require the E-1 and E-2 visa holders be in the United States solely to carry on trade of a substantial nature, which is international in scope, either on their own behalf or as an employee of a foreign person or organization engaged in a trade, principally between the United States and the foreign state of which they are a national. E-2 visa holders must invest substantial sums of capital in a bona fide enterprise in the United States, which is distinct from a marginal enterprise established solely to earn a living to support themselves and their households. These INA requirements align with the active trade and business requirements under 26 U.S.C.A. Section 179, potentially allowing E-1 and E-2 nonimmigrant visa holders to qualify for the immediate expense deduction under Section 179 of U.S. tax laws.
What about the L-1 nonimmigrant visa holder? Under U.S. immigration law, L-1 visa holders, who are intracompany transferees, must work in executive, managerial, or specialized knowledge capacities for qualifying entities. Their eligibility for Section 179 immediate expense deductions would depend on whether their business activities in the United States involve the active conduct of a trade or business and whether they meet the income limitations under the statute.
Our reader must keep in mind that 26 U.S.C.A. Section 469 is always lurking about and guidance from a qualified tax advisor could be helpful, since Section 469 establishes and set forth ‘material participation requirements’, and defines passive activity as any trade or business in which the taxpayer does not materially participate. The practical effect of Section 469 is disallowance of deductions as normal business expenses. This is a particularly troubling area for the EB-5 investors. Let us now take a closer look at Section 179 and EB-5 investors.
EB-5 Immigrant Visa Classification: EB-5 Foreign Investors and Section 179:
It is important to repeat that 26 U.S.C.A. Section 179(1) requires that qualifying property must be acquired by purchase for use in the active conduct of a trade or business. The deduction is limited by the taxpayer’s taxable income derived from the active conduct of a trade or business during the taxable year. The EB-5 Immigrant Investor Program was created by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors.
EB-5 visa investors may elect to take the Section 179 immediate expense deductions under certain circumstances; however, an EB-5 immigrant visa holders eligibility depends on specific factors related to the nature of their investment and the level of their personal participation in the business activities. Remember, Section 179 allows taxpayers to deduct the cost of certain property as an expense rather than capitalizing the cost, but this is subject to limitations and requirements that may disqualify passive investors or those whose activities do not meet the criteria for active trade or business involvement. This is particularly true for foreign investors who invest in Regional Centers under the EB-5 Immigrant Investor Program. Taxpayers who are in the business as mere passive investors, minimally involved or sporadically involved are typically considered by the courts as personal investors rather than active investors conducting a trade or business. Any losses for passive activity would be disallowed as normal operating losses under Section 469 passive loss rules unless the EB-5 investor can show that they materially participate in the trade or business. Additionally, Section 179(d)(9) disallows Section 179 immediate expense deductions for property if it is subject to the passive loss credit limitations. Section 179 is not allowed for activity that is passive or lack active and material participation. However, perhaps the EB-5 investor can overcome these limitations if they can demonstrate that they are active in management and operational decisions of the commercial enterprise. Active participation may include involvement in management decisions, such as approving tenants, deciding rental terms, or arranging for services and repairs. Bottom line, the EB-5 investor must satisfy the material participation requirements under Section 469(h)(1) which include regular, continuous, and substantial involvement in the operations of the trade or business. Then, they may qualify for the Section 179 immediate expense deduction.
EB-5 investors may want to consult with experienced tax counsel to carefully evaluate their level of involvement in the commercial enterprise and the nature of their investment to determine eligibility for Section 179 immediate deductions.
This law blog is written by attorneys at Coleman Jackson, P.C., which is located at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206 for educational purposes; it does not create an attorney-client relationship between this law firm and its reader. You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.
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