Investors & landlords

1. What is the best way to deduct the furnishings for this unit? Is it true that items under $200 are able to be expensed as "supplies" or "other expenses"?

Don't know where you got $200 from. Basically, A qualified asset that cost less than $2,500 can be expensed. But one of the requirements is that you can only do that in the tax year the item/asset was purchased. So if the furniture was purchased in 2020 for the express purpose of furnishing the rental property as a rental, you can expense the furniture in the rental expenses section. If the furniture was just items you had "on hand" that were purchased at some time in the past, you can't expense it.

2. A few of the items were $198 before sales tax+shipping. After sales tax+shipping they were over $200. These items could not be expensed as supplies, because their total cost was over $200. Is this true?

No.

3. If I elect to take the de minimis Safe Harbor, would it apply to all of my rentals, or just this one property?

It has to be applied equally for all assets in that asset class, regardless of what rental property that asset is in. You can't choose to expense some items classified as appliances/furniture, and depreciate other items in that same asset class.

4. If I use the Safe Harbor election, would I have to do so every year?

No. Once you deduct the cost of an item in a tax year, you can't deduct it again.

5. If I take the 100% Bonus Depreciation, how would this affect my depreciation schedule in the future years?

All that does is fully depreciate an item in the first tax year that item is placed in service. Yes, it adds to the accumulated depreciation.

6. If I take the 100% Bonus Depreciation, would I add it as a separate asset?

Yes. As you enter it in the Assets/Depreciation section, the program will "know" if it qualifies for the Special Depreciation Allowance (SDA, or what you call bonus depreciation) and offer you that option.

I currently have each unit (1,2,3,and 4) as a separate asset for this property. Could I lump all the furnishings over $200 together? And would the cost basis be the total price paid for these pieces of furniture?

You can. But I would suggest you separate things out and group them based on what unit they are in. Of course, that could present it's own paperwork hassle if you move things around among units in the future.

The 100% bonus depreciation option seems a bit less complicated to me.

First, will it "really" make any difference on your tax liability? If you have a mortgage on the property, I doubt it will. However, depending on when you sell the property it *will* make a difference on your taxes in the year you sell. Remember, when you sell rental property, you are required to recapture all depreciation taken and pay taxes on it in the year you sell it. Two things happen concerning depreciation recapture in the year you sell.

- The recaptured depreciation is added to your AGI for that year.

- The increased AGI has the potential to bump you into the next higher tax bracket in that tax year.

Generally, upon the purchase/acquisition of residential rental real estate, when you add up the deductible expenses of mortgage interest, property taxes, insurance and add that to the depreciation you're required by law to take every year on the property, those four items alone are usually enough to exceed the total rental income you will receive for the tax year. Add to that the other allowed rental expenses (repairs, maintenance, etc) and you're practically guaranteed to have no taxable rental income every year you own and rent out the property. (If you use the property for personal use for a period of time every year, this can have a direct impact on things.)

So it's perfectly possible that trying to claim all the depreciation early may not help your tax situation one bit. However, it can have the potential to hurt your tax situation in the future, especially if you sell the property before the assets would have been fully depreciated anyway under MACRS.

From my experience and perspective of things for my specific situation, what may save me a few pennies now, will moe than likely cost me may dollars later.  Remember, TNSTAAFL (There's no such thing as a free lunch.)

I am concerned about meeting the requirements for the safe harbor election every year (specifically the 250 hours minimum). Also, because my furnished rental unit was used as my personal residence for over half the year, I think I may be disqualified from using this election.

You're talking about the 20% QBI (Qualified Business Income) deduction. Don't confuse that with the Safe Harbor election. I can directly identify with your concerns. I myself own three rental properties (all residential) and even with all three combined I can't even come close to exceeding 100 hours a year directly involved in the management of the property. Forget about 250. I even had one year where I had two rentals go empty back to back. Even with me doing the work myself to turn each property around for the next renter, I still could not exceed a total of 100 hours for the year among all three of my rentals combined. Therefore I don't bother with the QBI stuff.