I renovate individual units within a rental property. My previous accountant instructed that these must be recorded as an asset and depreciated; however, I'm now fairly certain this is not the case. I am trying to figure out the best way to make or save the most money depending on how I file. My profits on my two buildings are not much ... about $26K last year.
So, I understand if I depreciate property, I only delay taxes owed until depreciation recapture. The taxes then due at time of building sale will either perhaps reduce, stay the same or increase -- depending on the current tax bracket at that time.
Alternatively, I can expense these improvements under De Minimis Safe Harbor as long as each listed expense is under $2,500 -- even though total unit costs for each unit may exceed that amount.
My questions are:
1) Do I have this right?
2) Is there a general recommendation on which selection is optimal?
3) If I expense instead of depreciate items, is there any way to use them at time of building sale to reduce capital taxes?
Thank you.
