Rental Property Renovation Deductions

[sunshine39]

1)  Can de minimis safe harbor be used for renovation-related labor costs under $2500 or tangible items only?  I have seen some posts saying to add the labor to the tangible item but unsure if that is correct.  For example, we purchased appliances separately, each under $2500.  However, we hired someone to install them at a cost of $850.   We also incurred a number of other separate renovation-related labor costs under $2500, e.g., plumbing, electrical, etc.

2)  If labor costs under $2500 cannot be claimed using de minimis, would I add all of the labor costs (regardless of cost) to the other renovation items (no appliances, flooring or furnishings) costing more than $2500 as one capital asset for 27.5 year depreciation?    

3)  In TT, to enter the cost of the renovation asset, would I select the following for Depreciation/ Asset?

      a)  "Rental Real Estate Property" asset

      b)  "Residential Rental Real Estate" category

      c)  enter "2023 Renovation" for the item asking to "Describe the residential rental real estate"?   Or must it be more specific?

Thank you.

 

[M-MTax]

Yeah but it's $2500 per item or invoice so start there.

You're not going to add any of these to your assets....you're going to expense/deduct them on Sch E as other expenses.

[sunshine39]

Thanks.  I understand to do that from your earlier guidance.  But the question is whether  "intangible" items under $2500 (e.g., labor) can be expensed as "Other Expenses".   Asking because I've seen info about de minimis/safe harbor applying to "tangible" items under $2500.  If labor is considered intangible and cannot be expensed, should all the labor costs be added to the total renovation items (each costing more than $2500) to come up with the capital improvement cost to be depreciated?  

Lastly, I would appreciate feedback on whether I am on the right track for Question 3 in terms of how to record the renovation cost (totaling $70,000 not including the "tangible" under $2500 items).  

Thanks again!

[JotikaT2]

The labor costs would be added to the cost of each asset as applicable.  For example, if the labor cost was $1,000 to install a new flooring that cost $2,000, then the total cost of the flooring would be $3,000.  Labor would not be considered an intangible cost.

As far as your last question, if you can break out the renovation costs based upon each improvement, that would be the ideal way to report it on your depreciation schedule. Essentially, the roof might last longer than the floors.  This ensure that when the time comes to replace one or the other, you are only removing the specific asset that is no longer in service.

@sunshine39 

[sunshine39]

Thank you.  I had understood that each receipt under $2500 could be entered as "Other" expense.  So using your example, my question would be whether I could enter $1,000 for the cost of the labor to install the flooring, and then separately, $2,000 for the cost of the flooring material, as they are on separate receipts.  I jwas not sure if labor for the renovation is considered an intangible item and could not be expensed, even if it's under $2500.