Hello,
I have a property which I purchased in 2015, used as a mix-use rental property for a year (I lived in it and rented out two rooms), then rented it out from 2016 until May of this year. Between April and August of this year, I did improvements on the house which cost about $100,000, and then I moved in in September. I estimate that I rented the house for 145 days; it was not in use for 60 days during renovations; and then I have lived in it for 160 days.
The improvements were a mix of things, the majority of which were under $2500 individually, although some of these items are on the same invoice - $1500 for painting the house; $1500 for installing cabinets; $1500 for demolition; $2000 for a fridge; $25 for door handles; $2,000 for plumbing work; $350 for a dining room light; and lots of other small purchases.
The some items were more than $2500: $8,800 for framing; $3700 for demolition, $4500 for drywall; $3900 for my handyman to repair my basement.
A few questions for my taxes:
- Am I eligible to use the De Minimis Safe Harbor Election for any expenses during the renovation that were under $2500? If I can use this election, do these items need to be divided like you would divide expense for a Rental Property with personal use based on when I occupied the house? So if I bought a refrigerator for 1000, could I only deduct approximately 40% of this under the De Minimis Safe Harbor Election because the house was only rented about 40% of the year? Or can I deduct the whole cost under this election? And if I use tis election do I deduct all repairs under this (the door I fixed in February, for example, when people were still renting) or only the big improvement project.
- If I am not able to use the De Minimis Safe Harbor Election, would I just need to capitalize all of the renovation expenses? And would I only capitalize 40% of the expenses because that is how long it was rented for during the year or can I capitalize the whole amount?
- If I do still report my repairs separately, and my expenses are more than my income and I plan to rent the house out again in the future, can I carry these forward to deduct in future years when the house is a rental?
Thank you for your help.
Rebecca
