I had to replace a broken furnace for my residential rental property. The total cost for it was $2525. On the invoice the breakdown for that charge is $2000 for furnace, $150 for a new thermostat, and the optional addition of a new return for $375 which was suggested since the furnace was an upgrade in the size of the unit(furnace). Is it possible to expense each item separately and elect the De Minis Safe Harbor or must I depreciate the whole charge of $2525?
Also there is a separate line item on the invoice for refrigerant of $225. Can I expense that?
The bottom line on the invoice is $2750. But in the end I had to only pay $2675.
@Ck218 A little tax advice first:
-If your rentals produce losses, do you get the benefits of losses on rental properties as many do not and because of that often you are better off depreciating everything. (The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.)
-does your state follow fed as some states do NOT and that creates timing differences.
-states like NJ do not allow any losses and again, it may be better to depreciate those assets then.
So back to your question that is related to the amount is in excess of the deminimis safe harbor of 2500. That safe harbor is per item or per invoice so yes break it down into different items. you would enter them into proper expense categories then. For more details from the IRS https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations
@Ck218 A little tax advice first:
-If your rentals produce losses, do you get the benefits of losses on rental properties as many do not and because of that often you are better off depreciating everything. (The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.)
-does your state follow fed as some states do NOT and that creates timing differences.
-states like NJ do not allow any losses and again, it may be better to depreciate those assets then.
So back to your question that is related to the amount is in excess of the deminimis safe harbor of 2500. That safe harbor is per item or per invoice so yes break it down into different items. you would enter them into proper expense categories then. For more details from the IRS https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations