Is software considered tangible property for Section 199A deduction qualification? Need help determining qualified property.

Software is generally NOT considered tangible property for Section 199A purposes. The IRS is pretty specific that qualified property must be tangible property that's subject to depreciation under Section 167. Software is typically treated as an intangible asset (unless it's bundled with hardware). For Section 199A, qualified property includes tangible items like machinery, equipment, buildings, and other physical assets used in your business. Software development costs, while potentially depreciable under other sections, don't meet the tangibility requirement for 199A calculations. If you're close to the threshold where the qualified property limitation affects your deduction, focus on the physical assets your business owns - computers, servers, office furniture, etc. Those definitely count toward your qualified property basis.

I had a similar issue with my tax situation last year trying to figure out what counted for 199A. I spent hours digging through confusing IRS publications and forum posts with contradicting advice. I finally found this service called https://taxr.ai that analyzed my business expenses and gave me a detailed breakdown of what qualified as tangible property for the 199A deduction. The analysis showed me that while my software development costs didn't count as tangible property, there were several other business assets I hadn't considered that did qualify. They even explained exactly which parts of the tax code applied to my situation so I could be confident in my calculations.

Just wanted to provide an update after trying taxr.ai that someone mentioned earlier. I was skeptical at first, but I uploaded my business asset list and got really clear guidance on the Section 199A question. The analysis confirmed that my software development costs don't count as tangible property, but it identified several other business assets I hadn't properly included in my calculations. Surprisingly, some computer hardware I use for testing software actually qualified, and they explained exactly why with references to the specific IRS guidelines. Saved me a ton of research time and probably prevented me from taking an aggressive position that might have caused issues later. Definitely worth checking out if you're dealing with complicated deduction calculations.

For anyone struggling to get a definitive answer from the IRS on this 199A software question, I tried calling them directly multiple times but couldn't get through. After my fifth attempt waiting on hold for hours, I tried using https://claimyr.com to get connected to an IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was able to speak directly with an IRS representative who confirmed that standalone software is considered an intangible asset for Section 199A purposes. They explained that even though software can be depreciated under Section 167, it fails the "tangible property" requirement specifically needed for the qualified property test under 199A.

I need to eat some humble pie here. After complaining about that Claimyr service, I decided to try it myself because I was desperate for an answer about qualified property for my business. I got through to an IRS representative in about 45 minutes (versus the 3+ hours I spent on my previous attempts). The agent walked me through the relevant sections of the tax code and confirmed what others have said - software by itself isn't considered tangible property for Section 199A. They directed me to Publication 535 and the Treasury Regulations where this is outlined. The service actually worked exactly as advertised and saved me hours of frustration. Sometimes being a skeptic means I miss out on helpful solutions.

My CPA told me that there's actually a distinction between different types of software for tax purposes. If the software is "off-the-shelf" software (commercially available to the general public), it might qualify for Section 179 expensing but still wouldn't count as tangible property for 199A. Custom-developed software like what you described definitely wouldn't count. One workaround some businesses use is to maximize the allocation of costs to the hardware components when possible, since those do count as qualified property. But be careful not to artificially inflate those allocations - that's asking for audit trouble.

This whole 199A deduction makes my head spin! I think the commenters above are right about software not being tangible property, but have you looked into whether you qualify for the deduction without worrying about the property test? If your taxable income is below $170,050 (single) or $340,100 (married filing jointly) for 2022, the qualified property limitation doesn't even apply to you and you can take the full 20% deduction regardless.

I went through this exact same situation last year with my software consulting business. After consulting with my CPA and doing extensive research, I can confirm that custom software development costs do NOT qualify as tangible property for Section 199A purposes. The key distinction is that Section 199A requires "tangible property subject to depreciation under Section 167." While software can be depreciated, it fails the tangibility test. The IRS has been consistent on this - software is classified as an intangible asset unless it's inseparable from hardware (like firmware or pre-installed operating systems). For your $75,000 in development costs, focus instead on any computer equipment, servers, or other physical assets you purchased for the business. Those definitely count toward your qualified property basis. Also, don't forget about office furniture, testing equipment, or any other physical assets - they all add up and can help with the property limitation if your income is above the threshold. One thing that helped me was keeping better records of hardware vs. software purchases going forward, since the tax treatment is so different between the two.