Solved: How does the safe harbor for small taxpayers apply when expenses are financed?
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How does the safe harbor for small taxpayers apply when expenses are financed?

The SHST states:

You are not required to capitalize as an improvement, and therefore may be permitted to deduct, the costs of work performed on owned or leased buildings, e.g., repairs, maintenance, improvements or similar costs, that fall into the safe harbor election for small taxpayers.

Among the conditions is the following:

The total amount paid during the taxable year for repairs, maintenance, improvements, or similar activities performed on such building property doesn't exceed the lesser of-

  • Two percent of the unadjusted basis of the eligible building property; or
  • $10,000 (for questions about how to calculate the unadjusted basis, refer to "Figuring the Unadjusted Basis of Your Property" in Publication 946


Two questions:
1) Does the unadjusted basis in this context exclude the land? (edit:  yes, land is excluded, see similar question here:
https://ttlc.intuit.com/questions/3182323)

2) Let's say the 2% limit is $8000.  If I install a $10,000 central air conditioner, but pay the contractor for it over three years ($3333 / yr), does that meet the SHST requirement (assuming no other repair/maintenance/improvement expenses)?





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Accepted Solutions
Employee Tax Expert

How does the safe harbor for small taxpayers apply when expenses are financed?

You are considered to have paid the entire $10,000 in the current year, even if you financed it. It's the same thing as purchasing any other asset with a loan (such as an automobile) or a credit card purchase.

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Employee Tax Expert

How does the safe harbor for small taxpayers apply when expenses are financed?

You are considered to have paid the entire $10,000 in the current year, even if you financed it. It's the same thing as purchasing any other asset with a loan (such as an automobile) or a credit card purchase.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

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