We have a rental property with a single family house. We are adding two additional duplexes to the same property. (which will make a total of 5 'units').
A couple notes that are probably important:
- Property is in NY
- Property is in an LLC (Partnership) - it is the only property owned by the LLC
- We still have depreciation available in the original house.
- The original house is likely going to be demolished and replaced or significantly renovated in the near future (not this year.).
- We have no reason to separate out expenses from a business side of the equation - so any complexity here would just be for tax purposes either for tax benefit or tax necessity.
- The entire project is based upon a cost per square foot, but also includes work related to the entire site that will benefit even the existing house.
- These are long term holdings and not a 'flip'.
- We use turbotax business as our tax platform.
QUESTION 1: Do I need to split out expenses during construction and/or operating expenses going forward, or can I just lump them together. Again, only would be doing this for tax purposes if necessary or beneficial. I'm thinking like do I need to track basis separately or something - particularly if I end up doing a substantial renovation or demolition/replacement of the existing house in the near future.
QUESTION 2: I use de minimis safe harbor election (1.263(a)-1(f)) on this property. I do not believe I can use this on the new construction even though my contract breaks the costs down to below $2500 / item, or am I incorrect? Is there another recommended method of advancing depreciation? Should I be looking into cost segregation (I'm an architect so we've prepared these for clients before - but never understood how they affected their taxes) or something else? I'm looking for some direction so I can do my owner deep dive into it.
Note: We've done our own taxes for years due to our complete dissatisfaction with local CPA's - so 'hiring a tax professional' hasn't worked out in the past. I'm more than comfortable doing the research & even calling the IRS with questions - I just need some general direction for now. If it's too complicated - I'm not opposed to hiring someone actually knowledgeable on these topics and would probably be reaching out to this community for recommendations.
