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I replaced a furnace on a rental property in 2015 that cost less than $2500. Can it be deducted using the De Minimis rule or does is need to be depreciated?

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I replaced a furnace on a rental property in 2015 that cost less than $2500. Can it be deducted using the De Minimis rule or does is need to be depreciated?

Yes, you can take the cost of the furnace as an expense.

This election for items $2,500 or less is called 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. Expenses typically reduce your income by a larger amount than depreciating an asset over multiple years does. This means you could get a bigger refund.

If you decide to take this option, a form called De Minimis Safe Harbor Election will show up in your tax return. This election will apply to all your businesses, rental properties or farms.

Here are the rules you need to meet to take this election:

  • You don't have an applicable financial statement (most people don't).
  • You have a consistent process for how you record expenses and assets.
  • You record these items as expenses on your books/records.
  • The cost of each item as shown on your receipt is $2,500 or less.

To take the De Minimis election please follow these steps:

Step 1.  Make the De Minimis election

  1. Click on the Business tab > Continue > I'll choose what to work on
  2. In the Rental Properties and Royalties section, click the Start/Update button.  
  3. 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. 
  4. When you come to the Rental and Royalty Summary screen.  Click on the Edit box next to the property.   
  5. If you haven't already started adding information about the property, continue through the screens to enter the needed information.
  6. You will now be on the Review Your [property name] Rental Summary screen.  
  7. In the Assets/Depreciation section, click on the Start/Update box.
  8. 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.)
  9. 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)
  10. On the Now, let's review each item you bought screen, mark whether all your new assets cost $2500 or less.  (Screenshot #3)
  11. If you mark that every item cost $2,500 or less, you will be brought to the Rental Summary screen.  Proceed with Step 2, below.
  12. If you mark that some cost above $2,500, proceed through the screens and answer Yes on 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.

  1. 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. 
  2. 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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