Thanks for the clarification, but the way I was reading it, or at least hoping to interpret this SHST was that you could treat an improvement as a repair provided the property was not pricey, your income is low, and the repair/improvement was $10,000 or less. Unfortunately, because I am in California the rent income still exceeds all the deductions you listed by a fair amount.
The reference I was looking at states (bold is by me):
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Safe Harbor for Small Taxpayers
The Safe Harbor for Small Taxpayers (SHST) is one of three safe harbors enacted due to the IRS repair regulation issued in 2013.
See the Routine Maintenance Safe Harbor and the De Minimis Safe Harbor.
The SHST allows landlords to currently deduct on Schedule E all annual expenses for repairs, maintenance, improvements, and other costs for a rental building (IRS Reg. § 1.263(a)-3h).
There are restrictions to qualify (listed below) but landlords need to ensure they keep careful track of all their annual expenses for repairs, maintenance, and improvements to justify the use of the safe harbor.
Rental Business Size Limitations
Landlords cannot use this SHST in any year that the following limitations are exceeded:
- $1 Million limit on unadjusted basis – note that unadjusted excludes land, land improvements, and personal property identified through a cost segregation study
- Annual expenses for repairs, maintenance, and improvements, cannot exceed the lesser of $10,000 or 2% of the building’s unadjusted basis
- Annual gross income for the landlord must be less than $10MM for the three preceding tax years.
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And then from the IRS directly (bold by me again):
https://www.irs.gov/businesses/small-businesses-self-employed/tangible-prop[product key removed]atio...
What are the simplifying alternatives to the facts and circumstances analysis?
Safe Harbor Election for Small Taxpayers
You are not required to capitalize as an improvement, and therefore may be permitted to deduct, the costs of work performed on owned or leased buildings, e.g., repairs, maintenance, improvements or similar costs, that fall into the safe harbor election for small taxpayers. The requirements of the safe harbor election for small taxpayers are:
- Average annual gross receipts of $10 million or less; and
- Owns or leases building property with an unadjusted basis of less than $1 million or less; and
- The total amount paid during the taxable year for repairs, maintenance, improvements, or similar activities performed on such building property doesn't exceed the lesser of-
- Two percent of the unadjusted basis of the eligible building property; or
- $10,000 (for questions about how to calculate the unadjusted basis, refer to "Figuring the Unadjusted Basis of Your Property" in Publication 946
- You make the election to use the safe harbor for each taxable year in which qualifying amounts are incurred.
