De Minimis Safe Harbor depreciation -- IRS Form 4562 instructions Say Nothing

[randy5419]

I own a rental property and pay tax as an individual (Form 1040).  According to Turbotax, I have the option to make a De Minimis Safe Harbor Election and expense a small capital expenditure.  I made the election and already filed the return.  I note that Turbotax entered the special depreciation on line 14 of Form 4562.   But the IRS Form 4562 instructions for Line 14 say nothing about using this line for expensing small capital expenditures.  How does Turbotax know this is the correct line?  How is someone who does their taxes manually supposed to know how to report this special depreciation?

I looked into this because my business partner does not use tax software, and I am advising him on how to fill in Form 4562.  

[KrisD15]

If you chose to expense the rental asset, that is considered "Special depreciation"  and entered on line 14. 

If you choose to use the Section 179 deduction, it would be on line 12. 

You made that choice in the rental section. 

You might want to look at Form 4562 Depreciation and Amortization Report since that seems easier to read. 

[Mike9241]

The de minimis safe harbor is simply an administrative convenience that generally allows you to elect to deduct small-dollar expenditures for the acquisition or production of property that otherwise must be capitalized under the general rules.

De Minimus Safe Harbor allows you to immediately expense assets and certain repairs up to $2,500 (per asset/repair).

you do not list the item as an asset and then take 179 or special depreciation. you include it as an expense such as repairs or maintenance

[Carl]

I note that Turbotax entered the special depreciation on line 14 of Form 4562.

De Minimis Safe Harbor and Special Depreciation Allowance are two completely different things.

De Minimis Safe Harbor is *not* depreciation. DMSH allows you to expense certain items that cost less than $2,500, instead of capitalizing and depreciating them.  When you elect this option, you can not add the cost to your cost basis. Do note that just because an item may cost less than $2,500, does not mean it qualifies for DMSH. The program has no way of knowing of the asset/item qualifies or not. It's up to you to determine.

In your case, it appears you did not elect DMSH, but instead elected to depreciate the item by using the Special Depreciation Allowance that allows you to completely depreciate the asset in the year placed in service. Electing this option does add to the cost basis. But by depreciating it fully in the first year that means when you sell the property, that particular asset will have a cost basis of zero basically.  That makes the sales price on the sale of that specific asset a fully taxable gain.

[randy5419]

Thanks for taking the time to respond.  Yes, I elected the option you circled in yellow, and I am confident my election is proper.  

But I apparently did not make my question clear.  My question is this:  Other than the fact that Turbotax enters the expense on Line 14, how can anyone know that the expense should be entered on Line 14 given that the IRS directions for Line 14 say nothing about the de Minimis rule and expensing small capital expenditures?  

[PatriciaV]

As Champ Carl has said, your question involves two separate options for reporting the purchase of assets.

Form 4562 reports Depreciation, and Line 14 is for the Special "Bonus" depreciation that you elected for certain qualifying assets.

On the other hand, the Safe Harbor Election is shown on your return on a statement titled "Section 1.263(a)-1(f) de minimis safe harbor election." This informs the IRS that you chose to expenses assets that would normally be depreciated.

Additional info: IRS Safe Harbor Election FAQs