Can Trusts Really Claim Section 179? – Avoid This Mistake + FAQs

No. Under current IRS rules, trusts cannot claim Section 179 deductions at the trust entity level.

The tax code explicitly states that estates and trusts are not allowed to make a Section 179 expensing election. In practical terms, this means a trust cannot take the immediate write-off for qualifying business equipment that Section 179 provides. Instead, a trust must generally depreciate those assets over multiple years using regular depreciation methods.

The only way Section 179 can benefit a trust is indirectly through a grantor trust arrangement. If the trust is treated as a grantor trust for tax purposes (meaning the trust’s income is taxed to an individual), then that individual (the grantor) can claim the Section 179 deduction on their personal tax return.

In that scenario, the trust itself isn’t taking the deduction – the individual owner is. Aside from such cases, a trust itself cannot directly claim Section 179 on a Form 1041 fiduciary tax return. So, the immediate answer is clear: No, a trust cannot directly claim a Section 179 deduction.

Federal Tax Law: What the IRS Says About Trusts & Section 179

To understand why trusts can’t use Section 179, it helps to know how Section 179 works and who it’s meant for. Section 179 of the Internal Revenue Code is a tax provision that allows businesses to deduct the full cost of certain depreciable assets (like machinery, equipment, and computers) in the year they put them into service, instead of spreading the deduction over many years. This is known as “expensing” an asset. It’s a popular tax break for small businesses because it accelerates tax savings. However, there are specific limits and eligibility rules:

• Annual deduction cap: Section 179 has an annual dollar limit (over $1 million in recent years) on how much can be expensed in one year, and a phase-out threshold if you buy too much equipment.
• Taxable income limit: You can’t use Section 179 to create a tax loss. The deduction is limited to the amount of income from active businesses. (Any excess can carry forward to future years.)
• Qualifying property: It generally applies to tangible personal property (equipment, vehicles, machinery, off-the-shelf software, etc.) used in a trade or business. Real estate and investment property usually don’t qualify, with some exceptions for certain improvements.

Who can elect Section 179? Typically, any taxpayer running a trade or business can elect Section 179 – this includes individual business owners (sole proprietors), partnerships, S corporations, and regular C corporations. These entities make the election on their tax returns (for example, a sole proprietor uses Schedule C and Form 4562; a partnership or S corp makes the election at the entity level and passes the deduction to owners).

Crucially, the tax law explicitly excludes certain entities from Section 179 eligibility. In fact, the Internal Revenue Code contains a specific provision stating that Section 179 “shall not apply to estates and trusts.” In other words, Congress intentionally barred trusts (and estates) from using this immediate expensing election. The IRS’s own publications reinforce this rule: IRS Publication 946 bluntly states that “estates and trusts cannot elect the Section 179 deduction.”

What does this mean in practice? A trust cannot claim a Section 179 deduction on Form 1041 (the fiduciary income tax return). Even if a trust is engaged in an active business or owns rental properties that buy new equipment, the trust is not permitted to take the upfront Section 179 write-off. Instead, the trust must capitalize and depreciate the asset under the normal depreciation rules (for example, deducting the cost over 5 or 7 years, or using bonus depreciation if available).

Pass-through entities and trusts: The Section 179 limitation on trusts also affects situations where a trust is an owner of a business entity. For example:

• If a trust is a partner in a partnership or a member of an LLC taxed as a partnership, the partnership can elect Section 179 for qualifying purchases. However, the trust partner cannot deduct its share of the Section 179 expense. The tax regulations specify that because the election isn’t available to trusts, any Section 179 amount allocated to a trust partner is not deductible by the trust. Instead, the partnership should treat that portion of the asset’s cost as if no Section 179 election was made for that share. The partnership can then claim regular depreciation on the trust’s portion of the asset’s basis. In short, the individual partners get their Section 179 deduction, but a trust partner does not – the trust’s portion gets converted to normal depreciation.
• Similarly, if a trust is a shareholder in an S corporation and the S corp passes through a Section 179 deduction, the trust as a shareholder cannot utilize that deduction. The S corp will allocate the Section 179 expense to its shareholders, but the trust’s allocated share can’t be deducted on the trust’s return. Instead, the S corporation (or the trust) will end up depreciating that portion of the asset over time. There are special trust types for S corp stock (discussed later), but the general rule stands: a trust doesn’t get the immediate deduction.

Why are trusts excluded? The tax code doesn’t state the rationale outright, but it’s generally understood that Section 179 was designed as a small-business incentive for operating entities and individuals, not for fiduciary entities. Trusts and estates often hold assets for the benefit of others and could be used to shift income or deductions. By excluding trusts, Congress likely aimed to prevent potential abuse and ensure the expensing benefit is limited to traditional business taxpayers. Practically speaking, trusts also tend to have high tax rates on retained income, and disallowing Section 179 prevents them from sheltering that income with large upfront deductions.

In summary, federal law is clear: a trust or estate cannot itself take a Section 179 deduction. This has been affirmed by IRS regulations and publications. Trusts must use alternate methods (like regular MACRS depreciation or bonus depreciation) to recover the cost of business assets – they just can’t use the Section 179 shortcut.

State-Specific Considerations for Trusts Claiming Section 179

Tax laws at the state level can sometimes differ from federal law, which adds another layer of complexity. However, when it comes to Section 179 and trusts, most states follow the federal treatment in disallowing trusts from taking the Section 179 deduction.

• States that conform to federal rules: Many states’ tax codes piggyback on the federal definitions of taxable income. If a trust can’t deduct Section 179 on the federal return, it similarly won’t get that deduction on the state return. For example, California’s fiduciary tax instructions explicitly state that elections to expense assets under Section 179 do not apply to estates and trusts, mirroring the IRS rule. So in California, a trust has no Section 179 deduction, just like at the federal level.
• Differences in Section 179 limits: One important state consideration is that even for taxpayers allowed to use Section 179 (like individuals or corporations), some states set their own deduction limits. A number of states have historically allowed a much lower maximum Section 179 deduction than the federal cap. For instance, Pennsylvania and California in past years capped the Section 179 deduction at $25,000 (far below the federal limit of over $1 million). What does this mean for trusts? If the trust is a grantor trust (where the individual owner can claim Section 179 on their federal return), the state may only allow a partial deduction or none at all above its limit. The individual might have to add back the excess on their state tax return and depreciate that portion according to the state’s rules. In a non-grantor trust scenario, since no Section 179 was allowed federally, the trust’s state taxable income already wouldn’t reflect any Section 179. The trust would just continue depreciating the asset on the state return, potentially under state-specific depreciation schedules.
• States decoupling from bonus depreciation: Another related factor is bonus depreciation. While not Section 179, bonus depreciation (under IRC §168(k)) is another way to accelerate write-offs. Some states do not allow bonus depreciation or require adjustments. A trust that cannot take Section 179 might rely on bonus depreciation for a big first-year deduction – but if the trust’s state has opted out of bonus depreciation, the trust may be forced to use slower depreciation for state purposes. Always check the state’s stance on both Section 179 and bonus depreciation.
• Multi-state considerations: If a trust operates in multiple states (for example, it has income from a business in State A and State B), each state’s tax law will govern the allowable deductions for that state’s portion of income. While no state is likely to permit a trust to take Section 179 when federal doesn’t, the allocation of income and depreciation across states can get complex. It’s crucial to follow each state’s rules on how depreciation or expense deductions are apportioned.
• Grantor trusts and state taxes: In the case of grantor trusts, the individual owner reports the business income and any Section 179 on their personal state returns. It’s worth noting that if the individual’s state limit is lower than the federal, they might have a state add-back for any Section 179 amount above the state cap. For example, suppose a grantor in a state with a $25,000 Section 179 cap expensed $100,000 under federal law. On their state return, they could only deduct $25,000 and would need to add back $75,000 (to be deducted via depreciation over time). This doesn’t let the trust take Section 179, but it affects the timing of deductions at the state level for that grantor.

Bottom line: Always consider state tax law nuances. Generally, trusts can’t take Section 179 at the state level either, because states follow the federal prohibition. But the amount and timing of deductions for trust-owned assets can vary by state due to differing conformity on Section 179 limits and depreciation rules. When planning asset purchases in a trust, be mindful of both federal and state implications to avoid surprises.

🚫 Key Pitfalls to Avoid with Trusts and Section 179

Even experienced taxpayers can run into trouble navigating Section 179 in the context of trusts. Here are some common pitfalls to avoid:

Pitfall 1: Trying to Claim Section 179 on a Trust’s Tax Return

It’s a mistake to attempt a Section 179 deduction on Form 1041 for a trust or estate. Some may assume that if a trust buys equipment for a business, it can simply expense it like a business would. In reality, the IRS will disallow a Section 179 deduction claimed by a trust. There is no line on the trust tax return to take a Section 179 expense, and any such deduction will be denied upon review. Attempting it can lead to an adjustment, interest, or even penalties. Always remember: a trust is not permitted to make the Section 179 election.

Pitfall 2: Losing Deductions in Pass-Through Entities

If a trust owns part of a partnership or S corporation, be careful with how Section 179 is handled. The entity might legitimately elect Section 179 for its qualifying purchases, but the trust’s share of that deduction cannot be used by the trust. A common mistake is allocating Section 179 to all owners without realizing the trust owner can’t benefit. This results in the trust’s portion of the deduction essentially being wasted for that year. To avoid this pitfall, the partnership or S corp should allocate the Section 179 only to eligible owners (individuals or corporations) and allocate alternative tax benefits (like regular depreciation or tax credits) to the trust’s share. Failing to plan for this can shortchange the trust on deductions.

Pitfall 3: Overlooking Grantor Trust Opportunities

On the flip side, sometimes taxpayers miss out on Section 179 that they actually could take because they misidentify the trust type. If you have a revocable living trust (which is a grantor trust) that owns business assets, remember that for tax purposes the IRS treats the individual grantor as the owner. That individual is eligible to claim Section 179 on their own return for assets placed in service through the trust. A pitfall is thinking “it’s in a trust, so I can’t use Section 179 at all.” In a grantor trust, you can – but it will be on the grantor’s 1040, not the trust’s 1041. Failing to use Section 179 in a grantor trust scenario (when it would otherwise be advantageous) means paying more tax than necessary.

Pitfall 4: Ignoring State Limitations and Differences

Another pitfall is not accounting for differences between federal and state tax rules. Perhaps you correctly avoid Section 179 on the trust’s federal return, but if an individual associated with the trust (like a grantor or beneficiary in a QSST scenario) claims Section 179 federally, you must consider state disallowances or limits. Ignoring the state’s Section 179 cap or add-back rules can lead to unpleasant surprises, such as adjustments on audit or large discrepancies between federal and state taxable income. Always adjust for each state’s rules when planning a trust’s deductions.

Pitfall 5: Confusing Section 179 with Other Deductions

Tax terminology can be confusing. Some may mix up Section 179 expensing with bonus depreciation or other depreciation methods. It’s a mistake to think “if the trust can’t take Section 179, it can’t deduct the asset at all.” The trust can still take depreciation (and often bonus depreciation) — just not Section 179 specifically. Conversely, don’t incorrectly label a trust’s bonus depreciation deduction as “Section 179” on returns. Each has different rules. Misreporting these can cause compliance issues. The key is to use the correct method: for a trust, skip Section 179 but utilize standard MACRS depreciation or bonus depreciation where available.

Avoiding these pitfalls requires careful attention to the type of trust you’re dealing with and the tax rules at both federal and state levels. Proper planning can prevent lost deductions or compliance problems.

Breakdown of Scenarios: Trust Types and Section 179

Not all trusts are alike. The interaction between trusts and Section 179 can vary depending on the trust’s tax classification. Here’s a breakdown of common trust types and whether they can benefit from Section 179:

Explanation: Grantor trusts (including most revocable trusts) are essentially transparent for income tax, so the real taxpayer (grantor or sometimes a beneficiary) can use Section 179 as if they owned the asset personally. In contrast, non-grantor trusts and estates are separate taxpayers and are barred from Section 179. Special S corporation trusts illustrate this difference: a QSST behaves like a grantor trust for the S corp income (the beneficiary is taxed, so an individual can take the deduction), whereas an ESBT is taxed at the trust level for S corp income (making Section 179 off-limits for that portion).

Understanding what type of trust you have is critical. If it’s a grantor trust, plan to take any Section 179 deduction on the grantor’s 1040. If it’s a non-grantor trust, don’t plan on Section 179 at all – look to other methods of deduction.

Key Tax Terms & Entities Explained

To navigate this topic, it’s important to grasp some key tax terms and entities related to trusts and deductions:

• Section 179 Deduction: A tax provision that allows a business to immediately expense the cost of qualifying business property (instead of depreciating it over years). It’s subject to annual dollar limits and business income limitations. It’s often used by small and mid-sized businesses to get an upfront tax break on equipment purchases.
• Depreciation: The standard method of recovering the cost of an asset over its useful life. For example, if a machine is depreciated over 5 years, you deduct a portion of its cost each year. Depreciation is governed by schedules (MACRS) and is the fallback if Section 179 isn’t used. Trusts rely on depreciation for their asset write-offs since they can’t use Section 179.
• Bonus Depreciation: A special depreciation allowance (currently under IRC §168(k)) that lets taxpayers deduct a large percentage of an asset’s cost in the first year. Bonus depreciation is not the same as Section 179, but it also accelerates deductions. Importantly, trusts are allowed to take bonus depreciation (unless a state disallows it) because the tax law does not exclude trusts from bonus depreciation. This is a key alternative for trusts to get immediate write-off of asset costs despite not having Section 179.
• Trust: In tax terms, a trust is a legal arrangement where a trustee holds and manages assets for beneficiaries. Trusts file Form 1041 for income taxes if they have taxable income. They can be grantor trusts or non-grantor trusts depending on who is taxed on the income.
• Grantor Trust: A type of trust where the grantor (the person who created and funded the trust) retains certain powers or benefits that cause them to be treated as the owner of the trust’s income for tax purposes. All income, deductions, and credits of the trust “flow through” to the grantor’s personal tax return (Form 1040). A common example is a revocable living trust – it’s entirely grantor-controlled, so the IRS ignores the trust and taxes the individual directly. For Section 179, this means the grantor can claim deductions (including 179) as if the assets weren’t in a trust at all.
• Non-Grantor Trust: A trust that is its own taxpayer, separate from the grantor. This happens when the trust is irrevocable and structured so the grantor doesn’t retain taxable powers, or after the grantor’s death. Non-grantor trusts pay tax on income (or pass income to beneficiaries who then pay the tax). These trusts cannot pass special deductions like Section 179 to anyone else. Since Section 179 is barred at the trust level, a non-grantor trust simply can’t use it.
• Estate: In this context, an estate is the legal entity that comes into existence when a person dies and their assets are administered by an executor. Estates are taxed similarly to trusts and file Form 1041. Like trusts, estates are not allowed to elect Section 179 for any business assets they hold.
• Partnership: A business entity (or arrangement) with multiple owners (partners) that is typically treated as a pass-through for tax. Partnerships can elect Section 179 for assets they purchase, and then allocate that deduction to partners on the K-1s. However, if a partner is an ineligible entity (like a trust or estate), that partner’s K-1 Section 179 amount is not usable by that partner.
• S Corporation: A corporation that has elected to be taxed under Subchapter S, making it a pass-through entity (profits and losses flow to shareholders instead of being taxed at the corporate level). S corps also can elect Section 179 on assets and pass the deduction to shareholders. They have restrictions on who can be shareholders (only individuals, certain trusts, and estates can qualify). If a trust is an S corp shareholder, it must be a qualified type (e.g., a grantor trust, QSST, or ESBT). As discussed, a trust shareholder won’t be able to use Section 179 unless it’s a QSST (where a beneficiary is taxed as the owner of that income).
• LLC (Limited Liability Company): A flexible business entity that can be taxed as a sole proprietorship, partnership, or corporation. For our purposes, if an LLC is single-member and owned by a trust, it’s disregarded and treated as part of the trust (so no Section 179, since the trust can’t take it). If an LLC has multiple members including a trust and is taxed as a partnership, the same partnership rules apply – the trust member can’t use Section 179.
• Form 4562: The tax form used to claim depreciation and Section 179 deductions. An individual, partnership, or corporation uses this form to elect Section 179. A trust or estate will also use Form 4562 to report depreciation, but the Section 179 part of the form is not available to them (the form instructions specify that an estate or trust cannot make the election).
• DNI (Distributable Net Income): A term related to trust taxation that generally limits how much taxable income can be passed out to beneficiaries. While DNI determines what income can be taxed to beneficiaries via distributions, note that a Section 179 deduction would never be part of DNI because the trust cannot take it in the first place. In other words, a trust can’t distribute a Section 179 deduction to beneficiaries; it can only distribute actual income.

These terms and entities form the background of why Section 179 works the way it does for trusts. Knowing them helps clarify the legal nuances – like why a “grantor trust” is treated differently than a regular trust, or how a partnership’s Section 179 allocation is handled when a trust is involved.

Detailed Examples: Trusts and Section 179 in Action

Let’s illustrate these concepts with a few concrete examples and scenarios:

Example 1: Revocable Living Trust (Grantor Trust) Owning Business Equipment

Scenario: Jane Doe is a sole proprietor who runs a consulting business. She has placed her business assets in a revocable living trust for estate planning purposes, but for tax purposes, this trust is 100% grantor (Jane reports all income on her Form 1040). In 2025, the business (through the trust) buys $20,000 of new computer equipment.

Outcome: Because Jane’s trust is a grantor trust, Jane can treat the purchase as if she made it personally for her business. She can elect Section 179 on her Schedule C to immediately deduct the $20,000 (assuming she has at least $20,000 of business profit to absorb it). On the trust side, nothing is separately reported – the trust doesn’t file a 1041 for this business income because it’s all on Jane’s return. Essentially, the trust’s involvement is ignored for tax, and Jane gets the full benefit of Section 179. If Jane lives in a state that limits Section 179 to $25,000, she’d still be fine since $20,000 is under that cap. This example shows that a revocable grantor trust can enjoy Section 179 through the grantor.

Example 2: Irrevocable Trust Operating a Business (No Section 179 Allowed)

Scenario: The Smith Family Irrevocable Trust is a complex trust (non-grantor) that owns and operates a small farming business. The trust has its own Employer ID Number (EIN) and files Form 1041 annually, paying tax on any income not distributed to the beneficiaries. In 2025, the trust purchases a new tractor for $50,000 to use in the farming business.

Outcome: The irrevocable trust cannot take a Section 179 deduction for the tractor. Even though the tractor is qualifying business property and the farm is an active trade or business, the trust is simply not an eligible taxpayer for the 179 election. Instead, the trustee must depreciate the tractor using MACRS (the normal depreciation system). For instance, if tractors have a 5-year depreciation life, the trust might claim around $10,000 per year for five years (or it could take bonus depreciation if available to get a bigger first-year deduction – which it is allowed to do since bonus depreciation isn’t barred for trusts). But it cannot expense the full cost under Section 179. If the trust generates $80,000 of profit that year, it will only reduce its taxable income by the depreciation amount (or bonus amount), rather than wiping out $50,000 immediately. The result is higher taxable income in year one compared to if Section 179 were allowed. The beneficiaries might receive trust income distributions (which carry out taxable income to them), but they too cannot deduct the tractor’s cost beyond what the trust did. This example highlights that a non-grantor trust must use normal depreciation schedules (and can use bonus depreciation if available) for its asset purchases, since it’s barred from the quick Section 179 write-off.

Example 3: Trust as a Partner in a Partnership

Scenario: A trust owns 50% of an LLC that is taxed as a partnership (the other 50% is owned by an individual). The partnership runs a construction business. In 2025, the partnership buys $100,000 of new machinery and elects to expense the maximum $100,000 under Section 179 at the partnership level. It will allocate $50,000 of that deduction to the individual partner and $50,000 to the trust partner on their respective K-1s.

Outcome: The individual partner can use the $50,000 Section 179 deduction on his personal tax return (assuming he has sufficient business income to allow it). The trust partner, however, cannot deduct its $50,000 share of Section 179. On the trust’s Schedule K-1 (Form 1065 K-1), there will be $50,000 in box 12 for Section 179, but the trust’s Form 1041 will have no place to claim that. The IRS instructions make clear that an estate or trust must ignore any Section 179 allocation received. What happens to the $50,000 portion? The partnership’s election is valid, but since the trust can’t use it, the tax regulations say the partnership (and its partners) must effectively pretend that portion was never elected for the trust partner. In practice, the partnership can still depreciate the $50,000 (the trust’s half of the machinery’s basis) under regular rules and allocate those depreciation deductions to the trust over time. The immediate tax impact:

• The individual partner gets a big immediate write-off ($50k).
• The trust gets only whatever depreciation is allowed on its $50k share of the machine (perhaps $10k each year if 5-year property, or potentially $40k in the first year if bonus depreciation at 80% is applied to that share, etc., but not the full $50k in year one).

Over the life of the asset, the trust will eventually deduct the entire $50k through depreciation, but it loses the timing benefit that Section 179 would have given. If the partnership could have allocated a larger share of Section 179 to the individual partner (by agreement), that might maximize immediate deductions, but tax rules generally require allocation of Section 179 in proportion to ownership. This example demonstrates how a trust as a partner gets left out of the Section 179 benefit, so partnership agreements and tax planning should account for that to avoid lost deductions.

Example 4: S Corporation Shares in Trust – QSST vs. ESBT

Scenario: John dies and leaves his S corporation stock to a trust for the benefit of his daughter, Emma. To keep the S corporation status, the trust must qualify as either a QSST (Qualified Subchapter S Trust) or an ESBT (Electing Small Business Trust). Let’s explore both:

• Under the QSST option, all S corp income must be distributed to Emma, and for tax purposes, Emma is treated as the direct shareholder of the S corp income. The trust is basically invisible for the S corp portion of taxes.
• Under the ESBT option, the trust can retain income, and it pays tax on the S corp income itself (separately from any other trust income). Emma doesn’t directly report the S corp income; the trust does (at the compressed trust tax rates).

Now, suppose the S corporation buys qualifying equipment and passes through a $20,000 Section 179 deduction attributable to the shares held by this trust.

Outcome (QSST): If the trust is a QSST, Emma will include the S corporation K-1 items on her own individual tax return. This means the $20,000 Section 179 deduction is effectively Emma’s deduction. She can use it on her 1040 (assuming she has other business or S corp income to allow it). The trust itself is not claiming anything; it just acts as a conduit. In essence, because a QSST is taxed like a grantor trust (with the beneficiary treated as the owner of the S corp income), Section 179 is usable just as if Emma personally owned the stock outright. Emma gets the tax break.

Outcome (ESBT): If the trust is an ESBT, the $20,000 Section 179 flows to the trust’s tax return. But as we know, the trust cannot take Section 179. The trust will have to ignore the $20,000 expensing on its return. Instead, the S corporation should provide an alternate treatment for that portion of the asset’s cost – likely depreciating the $20,000 over time and allocating that depreciation to the ESBT. The ESBT will pay tax on the S corp income without the benefit of the immediate deduction, resulting in a higher trust tax bill. Emma, as the beneficiary, doesn’t directly pay tax on the S corp income in an ESBT (the trust does), so she can’t claim that deduction either.

This example shows how the type of trust owning an S corporation can change the outcome. With a QSST (or any grantor trust arrangement), an actual individual is in the tax picture to use Section 179. With an ESBT (a non-grantor trust), the deduction hits a wall.

Example 5: Bonus Depreciation as an Alternative for a Trust

Scenario: XYZ Trust (a non-grantor trust) runs a small manufacturing business. It purchases a machine for $30,000. Being a trust, it knows Section 179 is off-limits. However, at the time of purchase, bonus depreciation is available at 80%.

Outcome: The trust cannot claim Section 179 for the $30,000 machine. But it can claim bonus depreciation. At 80%, that means the trust can deduct $24,000 of the machine’s cost in the first year as a special depreciation allowance. The remaining $6,000 will be depreciated in subsequent years. While bonus depreciation is not as flexible as Section 179 (which would have allowed choosing the amount to expense, up to the full $30k if permitted), it still gives the trust a major first-year write-off. This softens the blow of not having Section 179. If it were 2022 when bonus was 100%, the trust could have effectively matched a full expensing via bonus depreciation. This example highlights that trusts should look to bonus depreciation rules to accelerate deductions, since Section 179 isn’t available to them.

These scenarios underscore the key point: a trust itself cannot elect Section 179, but workarounds and alternatives exist (like grantor trust status or bonus depreciation) that can sometimes put an individual in the picture or achieve a similar tax result by other means.

Trusts vs. Other Entities: Section 179 Eligibility Comparison

How do trusts stack up against other types of business entities when it comes to Section 179? Here’s a quick comparison:

As we can see, virtually all other business entity types can utilize Section 179 in some fashion, except trusts and estates. Even tax-exempt organizations (though they typically don’t pay tax) or disregarded entities like single-member LLCs tie back to an eligible taxpayer. The trust/estate category is the one notable exception specifically carved out by the code. In essence, if you’re looking to maximize Section 179 deductions, you generally want the assets to be owned by an individual, partnership, S corp, or C corp – not directly under a non-grantor trust or estate.

For example, if a family is considering whether to have a business owned by an individual or by a trust, one factor is that an individual owner can use Section 179, whereas a trust owner cannot. Similarly, if a trust owns a business but it’s feasible to structure it as a grantor trust, doing so allows the Section 179 benefits to flow to an individual taxpayer instead of being trapped at the trust level.

IRS Rulings and Precedents on Trusts & Section 179

The rules preventing trusts from claiming Section 179 have been in place for decades, and the IRS has consistently upheld this ban. Here are some key points on legal precedents and guidance:

• Internal Revenue Code §179 – The law itself (26 U.S. Code §179) explicitly provides that the Section 179 election “shall not apply to estates and trusts.” This was not an accidental omission; it’s a deliberate exclusion written into the statute by Congress. Any argument for a trust to take Section 179 has to overcome this clear statutory language – a very unlikely prospect.
• Treasury Regulations – IRS regulations under Section 179 reiterate the rule and provide illustrations. One regulation notes that if a partner is a trust or estate, that partner may not deduct its allocable share of Section 179 expense, and it directs how the partnership should handle the trust’s portion (by using regular depreciation or an alternative tax credit for that portion). These regulations (which carry the force of law as interpretations of the Code) leave no ambiguity: a trust doesn’t get the Section 179 deduction.
• Tax Court cases – To date, there haven’t been notable Tax Court cases disputing this particular rule, likely because the law is straightforward. It’s widely accepted by tax professionals that a return taking Section 179 for a trust would be incorrect. If such a case were to arise, a court would almost certainly side with the IRS given the unambiguous code language. On a few occasions, the Tax Court and other courts have referenced the Section 179 limitation in passing when analyzing partnership allocations or S corp issues, simply reinforcing that trusts cannot benefit.
• IRS Private Rulings – Private Letter Rulings (PLRs) or other IRS guidance seldom address Section 179 with trusts because the answer is always the same (“no, it’s not allowed”). However, the IRS has issued rulings on trust situations confirming when a trust is considered a grantor trust (thus allowing the grantor to claim certain deductions). For example, rulings under IRC §678 (where a beneficiary is treated as the owner of trust income) could allow that beneficiary to take deductions like Section 179 on their return. But importantly, those rulings are about who is the taxpayer. They don’t change the rule that a trust as a taxpayer is barred from Section 179 – they simply might reclassify the income as belonging to someone else who can take the deduction.
• Legislative consistency – Over the years, Congress has amended Section 179 to raise limits or expand what property qualifies (for instance, adding certain real property improvements and increasing dollar caps in acts like the Tax Cuts and Jobs Act of 2017). In all these changes, Congress never removed the prohibition on estates and trusts. This consistency indicates a clear legislative intent to keep trusts out of the Section 179 incentive. Lawmakers have had opportunities to extend Section 179 to trusts and estates, but they’ve chosen not to.
• IRS Publications and Instructions – The IRS’s own guidance documents (like Pub. 946 and the instructions for Form 1041 and Form 4562) plainly state that trusts and estates cannot take Section 179. While these publications aren’t law, they reflect the IRS’s enforcement position. Tax software will also typically prevent a Section 179 entry on a trust return. All signs point to strict adherence to the no-trust rule.

In summary, the precedent is firmly set that trusts may not claim Section 179 deductions. There has been no successful challenge or exception to this rule in court or IRS practice. The only “workarounds” involve not having the trust be the taxpayer taking the deduction (for example, structuring the trust as a grantor trust or QSST so that an individual is the one actually claiming Section 179). But as long as an entity is taxed as a trust or estate, the Section 179 expensing election is off-limits.

Tax professionals dealing with complex estate and trust planning will keep this in mind. Often the strategy is to avoid placing operating business assets directly into a non-grantor trust if immediate expensing is important, or to use entities like partnerships or corporations where the trust’s involvement won’t block the deduction for others. The IRS’s stance aligns with the clear law: if a trust’s tax return shows a Section 179 deduction, it’s a red flag and would be corrected upon audit.

❓ FAQs: Common Questions about Trusts and Section 179

Can a trust claim a Section 179 deduction?
No. Under IRS rules, a trust (or estate) cannot directly elect to expense assets under Section 179 on a trust’s tax return.

Can an estate take Section 179 on its return?
No. Estates are treated the same as trusts for Section 179 purposes and are not permitted to claim a Section 179 deduction.

Does a grantor trust allow Section 179 to be used?
Yes. In the case of a grantor trust (including revocable living trusts), the individual owner can claim Section 179 on their personal return because the trust is disregarded for tax purposes.

Can a trust use Section 179 passed through from a partnership or S corporation?
No. The trust cannot deduct a Section 179 amount allocated to it by a partnership or S corp. That portion of the asset’s cost must be recovered via regular depreciation instead.

Are there any exceptions that let a trust use Section 179?
Generally no. The only “workaround” is using a trust that is ignored for tax (a grantor trust or QSST) so that an individual, not the trust, claims the deduction.

Can a trust take bonus depreciation since it can’t take Section 179?
Yes. Trusts can use bonus depreciation on eligible assets because the law doesn’t exclude them from bonus depreciation. This allows some immediate write-off, although Section 179 itself remains off-limits.

If a trust distributes income to a beneficiary, can the beneficiary claim Section 179?
No. Distributions of income don’t carry out a Section 179 deduction. Since the trust couldn’t elect Section 179 in the first place, there is no deduction to pass to beneficiaries.

Did Congress deliberately exclude trusts from Section 179 expensing?
Yes. Lawmakers intentionally barred trusts and estates from Section 179 to ensure the deduction mainly benefits active business owners and to prevent potential tax-sheltering abuses through trust arrangements.