Rental Unit Improvements: Expense vs. Capital improvements and basis

[Grimloktt]

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.

[tagteam]

1) Yes, you are correct in your assessment

2) You need to determine which method of cost recovery will work to minimize your tax liability and, in that sense, you need to consider all of your income and expenses.

3) If you expense the items, your basis in them is then $0 and anything you receive (above $0) for those items in a sale would be ordinary income.