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Error: Qualified Section 179 real property cannot be carried over

Error message

Qualified Section 179 real property cannot be carried over to 2023 per Section 179(f)(4)(A).
note
  • If the diagnostic is the result of a Section 179 expense taken on qualified real property placed in service in the current year, the amount of Section 179 expense should be adjusted to eliminate the disallowed portion.
  • This diagnostic won't prevent the return from clearing electronic filing error checking.

Solution

Under IRC Section 179(f)(4), the amount of any cost of qualified real property expensed under Section 179 that's disallowed can't be carried over to a taxable year beginning after 2022. This applies both to Section 179 expenses elected on qualified real property in 2022 UltraTax CS and Section 179 expenses elected on qualified real property disallowed in a prior year and carried forward to 2022 in UltraTax CS.
According to IRS Notice 2013-59, the amount of disallowed Section 179 expense attributable to qualified real property must be treated as property placed in service on the first day of the taxpayer's last taxable year beginning in 2022.
To treat the disallowed Section 179 expense attributable to qualified real property as property placed in service in tax year 2022 rather than a carryover to tax year 2023, follow these steps.
  1. Go to the asset tab that corresponds to the activity for which the Section 179 expense election was initially made (for example, the
    Income and Deductions
     folder).
  2. Add a new asset.
  3. Enter a description and a date in service corresponding to the first day of the last taxable year in 2022.
  4. Enter a Cost/Basis equal to the amount of disallowed Section 179 expense attributable to qualified real property. NOTE: to determine the disallowed amount of Section 179 expense attributable to real property, go to the
    Forms
     view in UltraTax CS, then the
    CO Summary
    .
  5. Select the appropriate
    Method
     and
    Life
     for the property for which the original Section 179 expense was elected, or use the
    Method/Life Wizard
     to select the right classification.
  6. Don't enter any Section 179 expense.
  7. To clear the diagnostic, access the applicable screen to reduce the amount of Section 179 carryover attributable to qualified real property from a prior year. Select the right return type to determine where the carryover amounts are entered.
  8. Further instructions for 1120 clients
    :
    • Go to the
      Carryovers
       folder and then to the
      NOL
       screen.
    • In the
      Section 179 - Regular Tax
       section, reduce the amount of excess Section 179 - qualified real property by the amount you entered in step 4.
  9. Further instructions for 1040 clients
    :
    • Go to the carryover screen for the activity and unit for which the Section 179 carryover applies. You can find this on the following screens: the
      Business
       folder, then the
      C-3
       screen; the
      Rent and Royalty
       folder, then the
      Rent-2
       screen; the
      Farm
       folder, then the
      F-3
       screen; the
      Farm Rental
       folder, then the
      4835-2
       screen; and the
      1065/1120S
       folder, then
      K1
      , then the
      K1-7
       screen.
    • On the same screen, reduce the amount of Section 179 carryover - QRP by the amount from step 4.

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