Replace windows as "Improvement" or Reduce duduction as "Expenses" once we have loan?

[MM025]

I came to know about this post.

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/if-i-replaced-windows...

If I got loan for windows and there is no interest on windows loan until paid in 15 months:

Note: Its for " Residential Rental Property" and filling schedule E.

Example:

Total Loan: $13,000

Paid $4,000 in 2024

Rest will be paid in 2025

Whats the best Practice to do?

1) I know we can use 27.5 years to depreciation 

https://www.irs.gov/faqs/sale-or-trade-of-business-depreciation-rentals/depreciation-recapture/depre...

2) Can we only add it as "miscellaneous expenses" for $4,000 in 2024 and claims $9000 next year?

If I use that election can i add $4000 directly into form?

Is there anything mentioned in IRS website that can support option 2?

What If IRS Audit? Is there any action against of above selection? What they would look at is if you were trying to expense an item that really needs to be depreciated?

Thanks

[PatriciaV]

Yes, you may be able to write off some of the cost of the windows if you qualify for the Safe Harbor Election for Small Taxpayers. TurboTax will ask you about this election under the Assets/Depreciation section of your Rental Property. If you choose this election, you can expense up to $10,000 in costs that would otherwise be depreciated.

The cost of the windows in full (or the balance after applying the Safe Harbor Election) is reported as a rental asset in the year they are placed into service (installation completed). It doesn't matter how you paid for the windows.

The loan payments are not rental expenses in any year. Next year, you can report the interest portion of any payments that include interest on the loan balance. Since you paid no interest on the loan in 2024, you would not report any interest expense for the loan this year. 

[MM025]

Tanks for your reply!

I will not able to use "Safe Harbor Election for Small Taxpayers" as I already used for Appliance.

We got a loan for 15 month without interest in 2024 and Windows were installed in 2024 also, once the tenant had already moved in.

We paid $4000 in 2024 and the remaining will be paid off in 2025. Again Its Interest Free if it paid in 15 months.

Now, Do we need to add total loan amount $12000 as depression for 27.5 years or we need to
divide them in 2024 and file depreciation again in 2025 for remaining balance? Or because we did not paid any interest then it can not be depression??

/////////////////////////////////////

Years to fully depreciate
27.5 years
MACRS Convention: MM
Depreciation Method: SL

Cost / Cost basis
$12,000

/////////////////////////////////

I'm confuse on this part:

"The loan payments are not rental expenses in any year. Next year, you can report the interest portion of any payments that include interest on the loan balance. Since you paid no interest on the loan in 2024, you would not report any interest expense for the loan this year. "

Be of Capital Expenditure: Since the windows are a capital improvement to your rental property, they generally need to be depreciated over time rather than expenses in one year.

https://www.irs.gov/faqs/sale-or-trade-of-business-depreciation-rentals/depreciation-recapture/depre...

But There is no information any where about Loan or how to enter them correctly.

[AnnetteB6]

Since you already used the safe harbor election for appliances, the window replacements will be depreciated.  You are on the right track to depreciate the full cost of the windows as a component of the residential real estate over 27.5 years.  

Since you are entering the full cost of the windows as an asset for depreciation, that $12,000 cost has been accounted for.  It was already paid by the loan company and you are paying off the loan.  Therefore, if you were to claim the amounts paid for the loan, it would be double-dipping the deduction.  That is why you cannot claim the payments made for the loan as a deduction.  You would only be able to claim interest on the loan, if there was any interest charged.  

@MM025