Investors & landlords

can I say number of days rented as 17 and rental income 0?

Yes, you can.

also for property improvement (I added gutter), it is under 2500, shall I use "safe harbor di-minimis"?

Understand that just because something cost less than $2,500 does not mean it qualifies for safe harbor. The TTX program has no way of determining if what you enter actually qualifies for the safe harbor election. So you have to determine that yourself.

Basically, if the new gutters were installed to replace the old gutters, then you can apply safe harbor. At least, I don't see anything in the safe harbor rules that would make me think or believe otherwise. But those rules aren't exactly written in plain english either. 🙂

Typically, if there were no gutters before, this would be a property improvement and entered as such. Now you don't have to enter it as a physically separate asset, if the work was done "before" the property was available for rent. You can just add that cost to your cost basis of the structure (not the land) and you're fine.

Typically, for someone starting out as you are, the only reason for entering a property improvement as a physically separate asset is if.

1) The class life of the asset is different from the class life of the structure or;

2) The asset was not placed "in service" on the same date the property was.

So if the gutters were installed before the property was available for rent, that means the in service date for the gutters is exactly the same as the in service date of the property at a whole. Additionally, the gutters become "a physical part of" the structure. So while I"m not sure on that, I think the fact that they are "new" as opposed to a "replacement" of the old gutters means it's not eligible for safe harbor.

So you can just add the cost of the gutters to the cost basis of the structure. Here's how you do that in TurboTax.

In Turbotax, you will be asked for the "COST". This is the entire amount you paid for the property. Then on the same screen you are asked for "COST OF LAND". For the cost of land, you enter the amount of the total COST entered above that, which is allocated to the land.

So if you add what you paid for the gutters to the COST box, that will not (and should not) change the amount in the "cost of land" box. But it will increase the amount that is allocated to the structure, and that's exactly what you want. This is because only the value/cost of the structure gets depreciated over 27.5 years. Land is never depreciated.

Another thing I want to point out also, even though I doubt it applies to you when it comes to safe harbor elections, is water heaters. Typically a new water heater can cost around $700, and that includes the installation costs. This is a "grey area" in the rules. While it does meet the cost requirements of being under $2,500, there is absolutely no question that it becomes "a permanent part of" the plumbing system, which itself is quite obviously "a permanent part of" the structure.

Now my interpretation (which may not be the same as others, and I'm personally fine with it.) is that a new hot water heater is not eligible for safe harbor. But my problem with that, is that depreciating a $700 dollar "property improvement" over 27.5 years has absolutely no impact on your tax liability during those 27.5 years. Not one single penny. You're talking around a $25 a year deduction. That's not going to make a sqat of difference in your tax liability.

However, a hot water heater can be considered an appliance - though I myself question that. Appliances are depreciated over 5 years. Additionally, an appliance can qualify for the SDA (Special Depreciation Allowance) that allows you to depreciate the asset 100% in the first year it's placed in service.

Take note that "residential" rental property (as opposed to business rental property) and a vast majority of "any" rental assets associated with it, just flat out does not qualify for the SEC 179 deduction. But it can qualify for the Special Depreciation Allowance. (SDA).

Just my thoughts. I'll stop rambling now. 🙂