Safe harbor for small business expense or depreciate?

[jeannie1122]

Tenant moved out and I have about $4,000 worth of repairs and $26,000 worth of improvements that I made in 2021.  In turbo tax when I enter the improvements under "add an asset" it gives me the option of taking a Section 179 deduction, which would expense it for the year. From, what I'm reading, the safe harbor for small taxpayers (SHST) only applies if the repairs + improvements is less than $10k. Why is Turbo tax giving me the option of expensing it, and since it does, can I expense the $26k worth of improvements instead of depreciating them?

[Carl]

Why is Turbo tax giving me the option of expensing it.

What MACRS classification are you using for the asset? With $26K of property improvements, I would expect you to be classifying the improvement as residential rental real estate and depreciating it over 27.5 years.

SEC 179 is not expensing it. It's just accelerated depreciation.  Residential rental real estate and it's associated assets do not qualify for SEC 179. (Commercial rental real estate does if conditions are met.) But it may qualify for the Special Depreciation Allowance.

Generally, since residential rental real estate almost always operates at a loss on paper every tax year, it's of no real benefit that I can see, to take any type of accelerated depreciation. It's just not going to affect your tax liability for the current tax year at all. I'm sure there are situations I'm just not aware of, where it would benefit though.

[Mike9241]

only certain types of improvements to NONRESIDENTIAL REAL PROPERTY qualify for the 179 deduction.

Qualified section 179 real property.

You can elect to treat certain qualified real property you placed in service during the tax year as section 179 property. If this election is made, the term “section 179 property” will include any qualified real property that is:
• Qualified improvement property as described in section 168(e)(6) of the Internal Revenue Code, and
• Any of the following improvements to nonresidential real property placed in service after the date the non-residential real property was first placed in service.
1. Roofs.
2. Heating, ventilation, and air-conditioning property.
3. Fire protection and alarm systems.
4. Security systems
Qualified improvement property.

Generally, this is any improvement to an interior portion of a building that is nonresidential real property if the improvement is placed in service after the date the building was first placed in service.
Also, qualified improvement property does not include the cost of any improvement attributable to the following.
• The enlargement of the building,
• Any elevator or escalator, or
• The internal structural framework of the building

the safe harbor is 2% of the unadjusted basis of the property with a max of $10,000