Using de minimis Safe Harbor for a renovation

[Bestvalue888]

Thanks so much!  I did not know this rule before so I even depreciated the stove I bought that only worths $200. For the items I claimed depreciation in the past years, I could not correct them anymore, correct? I will just have to continue depreciating till the end of 5 years right? Thanks.

[tagteam]

@Bestvalue888 That  is also correct; by capitalizing property in the past, you essentially have foregone the safe harbor election (de minimis expensing).

[Bestvalue888]

Ok got it! Thanks!

[trapezewdc]

Where in TT Premier Live online version do I elect Safe Harbor Election for Small Taxpayers ?

[AnnetteB6]

When you go into the Assets/Depreciation section there will be a question asking if you want to go to your Asset Summary or if you want to review your answers to the annual elections questions.  Choose the 'review your answers' option and you will be able to elect the Safe Harbor Election for Small Taxpayers if qualified.  

@trapezewdc

[DanKar73]

Hi..please help..

my tenant kept the refrigerator leaking till it damaged the hardwood floor.

i brought a contractor and we changed the whole floor (the whole ground area) with Luxury vinyl planks (LVP).

he charged m  $2200 for the labor and i went with him to pick and buy the LVP, I paid $1900 for the it in a separate invoice.

$2200 for labor in once invoice.

$1900 for material in another invoice.

Can i enter both under the De Minimus Safe Harbor election separately ?

thank you

[DanKar73]

Hi..please help..

my tenant kept the refrigerator leaking till it damaged the hardwood floor.

i brought a contractor and we changed the whole floor (the whole ground area) with Luxury vinyl planks (LVP).

he charged m  $2200 for the labor and i went with him to pick and buy the LVP, I paid $1900 for the it in a separate invoice.

$2200 for labor in once invoice.

$1900 for material in another invoice.

Can i enter both under the De Minimus Safe Harbor election separately ?

thank you

[CatinaT1]

Since you replaced the whole floor, this is an improvement and the cost and labor cannot be separated.

[Edited 4.9.2020 | 1:05pm]

[piersonj47]

Please help, is the $2,500 limit on the item or the item + tax? Is it the whole invoice or just the item cost?

thank you

[Carl]

Residential Rental Real Estate assets are not eligible for the SEC 179 deduction. Some are eligible for the 50% Special Depreciation Allowance. Some are eligible for safe harbor.

Absolutely none of your property improvements are eligible for either SDA or safe harbor. That's because there is absolutely no question those improvements are a permanent and physical part of the structure. Your cost basis is what you paid for *EVERYTHING*, including labor and materials. Even if it totals less than $2,500, which in your case is seriously doubt it does.

You add this property improvement in the Assets/Depreciation section. It's classified as residential rental real estate and gets depreciated over 27.5 years. Depreciation starts on the date the work is finished and it's placed "in service".

If you own the refigerator and replaced it with a new one that you own, then I"m confident the cost of that including the delivery charge was less than $2,500. So that can be expensed under safe harbor with no issue or problem.

[tagteam]

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@piersonj47 wrote:

Please help, is the $2,500 limit on the item or the item + tax? Is it the whole invoice or just the item cost?

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It is per invoice (or per item as substantiated by the invoice) per Treas. Reg. §1.263(a)-1(f)(1).

See https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations

[Arturo]

I recently paid under $10,000 to replace the entire roof on my rental.  It had to be replaced because it was old and leaking in spots.   The unadjusted basis of the house is $70,000 as it is quite old.  Am I allowed to apply the safe harbor rule ? The old roof was replaced was installed in 2003.

Thanks

[MayaD]

No, you don't meet all the requirements to qualify for the Safe Harbor Election for Small Taxpayers.

Improvements Election  is an option you can take each year that lets you write off some building improvements as expenses instead of assets.

Here are the rules you need to meet to take this election:

• Your gross receipts, including all your other income, are $10,000,000 or less.
• Your eligible building has an unadjusted basis of $1,000,000 or less.
• The cost of all repairs, maintenance and improvements is less than or equal to the smallest of these limits: 
  • 2% of the unadjusted basis of your building or
  • $10,000

[Arturo]

Thanks for the response.  Am to understand that  my roof expense doesn't qualify because of the 2% rule?  

[MarilynG1]

@Arturo It depends.  Was the cost of your new roof for your Rental Property over 10K?  Is 2% of the Unadjusted Basis of the Rental Property less than 10K?

Go to the Assets section in the Rental section to see if you qualify for the Improvements Election.

If not, you can still depreciate the cost of the new roof as a separate asset each year.

Click this link for more info on Safe Harbor and Improvements Election.