De Minimus Safe Harbor

[Carl]

is rental income required before use of the Safe Harbor"?

Nope. It's perfectly feasible to have "carry over" save harbor. At least, that's what I call it for lack of a better and more descriptive term. When it comes to long term residential rental real estate income, I have a hard time wrapping my own head around the safe harbor stuff, since it's just not common (though not unheard of either) for that type of rental property to actually have taxable rental income.

I myself am in a situation with three rentals and one of them is paid off in full. So I do actually show a taxable profit each and every year. However, with only three rentals, I still don't come anywhere even close to meeting the 250 hours "directly involved" requirement needed to qualify for the QBI deduction claim. In fact, even if I were to aggregate the three rentals and have them all go empty in the same tax year, the time put into the turn-around preparing each one for the next renter, wouldn't even exceed 100 hours. Therefore, I "know" I don't qualify for QBI on my rental income. So I don't bother with it.

Besides, with one property paid off, the actual taxable income total among all passive activity barely exceeds $3K each year. So if I did qualify for QBI, the 20% reduction of my taxable rental income by $600 give or take, is only going to save me a grand total of "MAYBE" $10 in taxes. I've never actually figured it, since I don't qualify to take the QBI anyway.

You were never rude.

I do try to be careful. When communicating in a text based communications forum such as this forum, I try to "get to the point" and only provide the information needed to both support the point, and answer the question asked. It's so easy to "read emotion" into a statement; emotion that just was not there when the statement was typed. When I see that, which is usually when re-reading through a thread to refresh memory, I'll clarify things on that front a bit more. One of my favorite quotes from my military days is, "the quality of the answer is directly proportional to the clarity of the question."  That statement helps me remember to read correspondence for content, and not for context of delivery. Just because I do that, doesn't mean everyone else does.

[yupod]

Carl,

Just like you, I have three rentals and I am not looking to qualify for QBI. However, could I  still qualify to deduct an appliance under 2.5k under the safe harbor? Or is it a no-go unless I spend 250h/y being "directly involved"? 

Thanks

[DianeW777]

If you make all the decisions about your rental(s) and oversee the property by either doing the work or hiring someone you are actively participating directly in this activity. You expense the appliance in the year placed in service, which will be 2021.  The rental unit must be rented or available for rent and advertised as such.

If the amount is $2,500 or less then you may be able to directly expense this under miscellaneous deductions on the rental using the DeMinimis Safe Harbor rules.

De Minimis Safe Harbor Election

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/deduct 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.
• Rental Property select Edit > Other expenses > Other Miscellaneous Expenses
• Enter Description (Safe Harbor ...) and amount (not entered as assets under this election)

Note:  Because you are under the $2,500 threshold, you are not required to used section 179.  You can list these expenses under Miscellaneous.  If the amount was over 2,500, then you would enter these as assets and then would be able to choose the 179 option.

• Maintain a complete record with your tax return should you need to verify these items at a later time.