I am trying to determine if I can take the election to deduct certain expenses or if I have to depreciate them over time. Turbo tax is asking me to determine if all repairs, maintenance, and improvement is less than or equal the smallest of the following: 2% of unadjusted basis of the building or $10,000.
Original basis (unadjusted basis) is simply what you paid for the building (not the land). Adjustments are then made to the original basis for improvements, depreciation, etc.
The limitations you mentioned are only for the Improvements Election, also known as the Safe Harbor Election for Small Taxpayers.
You also might want to take advantage of the De Minimis Safe Harbor Election. This election is an option you can take each year that lets you write off items $2,500 or less as expenses instead of assets. It does not have the income or basis requirements.
To make either of the elections please follow these steps:
Part 1. Make the election
- Click on Federal Taxes > Wages & Income [In TT Home & Biz: Business > Continue > I'll choose what to work on]
- In the Rental Properties and Royalties section, click the Start/Update button.
- If you have already started adding information about your business, you will be asked if you want to review your rental and royalty information. Click the Yes box.
- When you come to the Rental and Royalty Summary screen. Click on the Edit box next to the property.
- If you haven't already started adding information about the property, continue through the screens to enter the needed information.
- You will now be on the Review Your [property name] Rental Summary screen.
- In the Assets/Depreciation section, click on the Start/Update box.
- When you come to the screen, Did you buy any items that each cost $2,500 or less in 2015? mark the Yes button and click Continue. (See Screenshot #1, below.)
- On the screen Let's see if you qualify to deduct these items as expenses, mark both of the Yes buttons and click Continue. (Screenshot #2)
- On the Now, let's review each item you bought screen, mark whether all your new assets cost $2500 or less. (Screenshot #3)
- If you mark that every item cost $2,500 or less, you will be brought to the Rental Summary screen. You have elected the De Minimis Safe Harbor provision. Proceed with Step 2, below.
- If you mark that some cost above $2,500, you will be asked Did you make improvements to rental in 2015?
- If you say Yes, you will be taken through the screens for the Improvements election.
- If you say No, you will see the screen Do you have any items that aren't covered by your elections? Proceed through the screens to enter these assets. (Screenshot #4)
Step 2. Enter your election-related items as other expenses.
- On the Rental Summary screen go to the Expenses section and click on the Start/Update box. Click I'll choose what I work on.
- Continue to the Any Other Expenses? screen and enter the description and amount paid for the assets. Click Continue when finished. (Screenshot #5)
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