topic Safe Harbor - cost of land vs building in Investors & landlords

Safe Harbor - cost of land vs building

abarmot — Mon, 09 Mar 2026 05:01:27 GMT

I'm trying to understand how to calculate the maximum deduction allowed under the Safe Harbor for Small Taxpayers.

Total cost of property: $360,000 (from closing statement)

Land cost: $125,000 (from county tax assessment)

Safe Harbor maximum: (360,000 - 125,000) * 2% = $4700

is this correct? or can I use 2% of entire $360,000?

Thanks!

Re: Safe Harbor - cost of land vs building

Critter-3 — Thu, 24 Feb 2022 23:51:02 GMT

There is no safe harbor rules for real estate ... if this is residential the property is 27.5 year property period using the MACRS mid month SL depreciation tables.

Re: Safe Harbor - cost of land vs building

abarmot — Thu, 24 Feb 2022 23:58:04 GMT

@Critter-3 I'm talking about Small Taxpayer Safe Harbor For Repairs and Improvements. There is a limit on total amount of repairs and improvements - 2% of the unadjusted basis of the building. I'm basically trying to understand how to calculate that unadjusted basis.

Re: Safe Harbor - cost of land vs building

Cynthiad66 — Fri, 25 Feb 2022 00:01:35 GMT

@abarmot Your property does not qualify under the Safe Harbor Rules

For more information: Safe Harbor for Small Taxpayers

Safe Harbor Election for Small Taxpayers

You are not required to capitalize as an improvement, and therefore may be permitted to deduct, the costs of work performed on owned or leased buildings, e.g., repairs, maintenance, improvements or similar costs, that fall into the safe harbor election for small taxpayers. The requirements of the safe harbor election for small taxpayers are:

Average annual gross receipts of $10 million or less; and
Owns or leases building property with an unadjusted basis of less than $1 million or less; and
The total amount paid during the taxable year for repairs, maintenance, improvements, or similar activities performed on such building property doesn't exceed the lesser of-
- Two percent of the unadjusted basis of the eligible building property; or
- $10,000 (for questions about how to calculate the unadjusted basis, refer to "Figuring the Unadjusted Basis of Your Property" in Publication 946
You make the election to use the safe harbor for each taxable year in which qualifying amounts are incurred.
- The election is made by attaching a statement to your income tax return for the taxable year. See When and how do you make an election provided under the final tangibles regulations?
- An annual election is not a change in method of accounting. Therefore, you shouldn't file Form 3115, Application for Change in Method of Accounting, to make this election or to stop applying the safe harbor in a subsequent year.

Re: Safe Harbor - cost of land vs building

abarmot — Fri, 25 Feb 2022 00:08:32 GMT

@Cynthiad66 I probably wrote something wrong and confused everyone.

I made repairs and improments to my property and I'm trying to understand if I qualify for SHST. To do that, I need to know my unadjusted basis. How do I calculate it? That is my question. I'm not sure how you can say it does not qualify if you don't know what the total cost of repairs and improvements was?

Thanks!

Re: Safe Harbor - cost of land vs building

Critter-3 — Fri, 25 Feb 2022 00:53:09 GMT

unadjusted basis = 360K

Re: Safe Harbor - cost of land vs building

Anonymous_ — Fri, 25 Feb 2022 00:57:37 GMT

I believe the cost of land would be excluded.

See Publication 946 (2020), How To Depreciate Property | Internal Revenue Service (irs.gov)