Are rental property Safe Harbor Election expenditures subject to Depreciation Recapture when the property is sold?

[PN10]

I am a rental property owner and just began using the Safe Harbor Election. Assuming an expenditure properly qualifies for a Safe Harbor Election and the election is properly made, is it correct to assume that there will be no depreciation recapture for this expenditure when the rental property is sold?

[Carl]

Keep in mind ACH00 that an expensed item is not listed on the 4652 depreciation report. No depreciation is taken, therefore nothing to recapture. Under the safe harbor election, it's expensed just like a maintenance cost is expensed.

[PN10]

Thanks for your response Carl. I had assumed the same, however, in my readings of the benefits for doing the Safe Harbor Election, I do not see listed the fact that these expenditures will not be subject to Depreciation Recapture.  This is a HUGE benefit, so it seems odd that it is not mentioned.

[Carl]

It's basically six of one, half dozen of the other. By not listing them as assets, you can't add it to your cost basis when you sell. That's the downside. The upside is when you sell there's no depreciation to recapture.

[MinhT · Accepted solution]

No, there is no depreciation recapture for assets expensed under the de minimis safe harbor election.

[PN10]

Thanks Minh.