I renovated my rental property and need some help figuring if I qualify to use the new De Minimis Safe Harbor Election portion of my tax return. It states, "The cost of each item as shown on your receipt is $2,500 or less." The total cost for my renovations was $6,100. Is it the total costs of all items is $2,500 or less or each individual item is $2,500 or less? My largest purchase was $1,700 for carpeting and after most items were in the $20.00 to $50.00 range. The language is somewhat confusing to me. Thanks for your help?
There are actually two similar elections you can take--the De Minimis Safe Harbor Election and the Improvements election.
For both elections each asset that you would normally depreciate over a number of years needs to be $2,500 or less.
The items in the "$20.00 to $50.00 range" would normally be taken as expenses, anyway. The elections apply to the assets you would normally depreciate, like carpeting, appliances, etc.
De
Minimis Safe Harbor Election
This election for items $2,500 or less is called the De Minimis Safe Harbor Election. This election is an option you can take each year that lets you write off items $2,500 or less as expenses instead of assets. Expenses typically reduce your income by a larger amount than depreciating an asset over multiple years does. This means you could get a bigger refund.
If you decide to take this option, a form called De Minimis Safe Harbor Election will show up in your tax return. This election will apply to all your businesses, rental properties or farms.
Here are the rules you need to meet to take this election:
Improvements Election
This 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:
This election for building improvements is called the Safe Harbor Election for Small Taxpayers. If you decide to take this option, a form called Safe Harbor Election for Small Taxpayers will show up in your tax return. This election will apply to all your businesses, rental properties or farms.
To make either of the elections please follow these steps:
Part 1. Make the election
Step 2. Enter your election-related items as other expenses.
Question on de minimis safe harbor:
1. Can this be applied to any appliances(like washer/dryer/microwave/range hood), furniture, repairs/maintenance, cleaning, electronics ?
2. Can this be applied to items not 100% used for biz ? Example: Appliances/furniture/electronics shared(say 50/50 equally) between renters and owners.
3. Can this be applied to expenses incurred in a prior year where there were no rental activities until the following year ? Example: Expenses incurred in 2017 and rental activities didn't start until 2018.
4. Can this be applied to above-mentioned 1/2/3 all-combined ?
@trapezewdc Yes, to all of those questions.
Just a couple of notes:
#2: You can only deduct the business portion of the item.
#3: If it is an item, you deduct the LOWER of (1) your Basis (usually the purchase price) or (2) the Fair Market Value when it was converted to a rental item (then multiplied by your business percentage).
Thank you TaxGuyBill.
I am confused with these two elections:
1. Which election to use for improvements, appliances, furniture, electronics ? Are these two elections completely exclusive and at the same time cover all the above scenarios(improvements, appliances, furniture, electronics) when combined ?
2. If it is ok for 2018 tax return to go back to 2017, how far back can we go ? Any year limit ?
3. When doing the expenses, does each item need to be entered separately, or one lump-sum number is allowed ? Example1: One receipt that has 10 items with each item being less than 2500. Ok to add up all 10 items into one lump-sum number and enter into TT ? Example2: 10 receipts from Example1. Ok to add up all 10 receipts into one lump-sum number and enter into TT ?
4. Just to confirm that, if I had repairs/maintenance/cleaning expenses incurred in 2017 where there were no rental activities, can I still deduct these expenses in the tax return of 2018 in which rental activities began ?
1) The De Minimis Election (under $2500) covers everything.
2) No limit, BUT it needs to be SPECIFICALLY for rental purposes.
3) It can be a lump sum.
4) No. If the property was specifically a rental, those might be able to be added to the depreciable Basis to be depreciated over 27.5 years. However, in your circumstance it seems like it might also be your personal home. If you had ANY personal benefit from it, that would make all of those that stuff non-deductible. Physical ITEMS that are used for rental (furniture, appliances, etc.) can be covered under the De Minimis Election, using the Fair Market Value on the date it was converted to a rental (multiplied by the business percentage).
Thank you. Yes I have a property that I am using half of it and renting out the other half.
1) It sounds like Safe Harbor Election for Small Taxpayers does not cover everything. If true, what does it cover then ?(improvements, appliances, furniture, electronics)
4) Can TT automatically figure out Fair Market Value for physical items ? If not what would be the best way ?
The Safe Harbor for Small Taxpayers covers the building and the repair and maintenance for the building. That starts when it is "placed in service". However, in most cases the De Minimis Election will cover everything you need.
No, TurboTax does not figure out the Fair Market Value. Thrift stores, eBay, Craigslist, garage sales, etc. would be the best way. Intuit does have the program "Its Deductible", which is designed for charitable contributions, which is basically the Fair Market Value. However, that program can't really factor in the brand, quality, etc. of your items very well. It could be used as a tool to assist you (but personally, I find it annoying and incomplete, so I personally wouldn't use it).
<a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/personal-taxes/itsdeductible/">https://turbotax.intuit.com/personal-taxes/itsdeductible/</a>
You also may consider a tax professional for the first year, to assist you with various questions and to give any recommendations based on your specific circumstances.
How do I know if I have successfully elected De Minimis Safe Harbor Election ? I am using online TT LIVE Premiere.
"#3: If it is an item, you deduct the LOWER of (1) your Basis (usually the purchase price) or (2) the Fair Market Value when it was converted to a rental item (then multiplied by your business percentage)."
What is the IRS doc that explicitly says it is allowed to deduct items purchased from prior year(s) per de minimis safe harbor election ?
p587. Does p16 describe what I am looking for ? Help is appreciated.
How about p535 ? Does p4 describe what I am looking for ?
You have given great directions on how to find it in Home and Business, but how do I find it in TT business for partnership? We own rentals in a partnership.
To access the de minimis elections in the 1065 (partnership) return, please follow these steps:
I have TT Desktop and it doesn't have a hyperlink. I think I can find the de minimis statement; however I can't find where to enter the dollar amount for the improvement de minimis deduction mentioned above.
Hope you can help me in this:
I'm using the premium version, my total repairs that i entered under expenses is $4520, the 2% of the unadjusted basis of my building =$5600.
I still have two separate receipts for improvement for my rental house ( changed the whole floor with Luxury Vinyl Plank),
one receipt is the material for $1900 and the other receipt is $2200 for the labor.
1.how can i enter them in De Minimus Safe Harbor election,Safe Harbor Election for Small Taxpayers?
2. can i enter both under "Did you buy any items for rental property that cost $2,500 or less in 2019?"
or one under the this question and the second one under the "Did you make improvements to Second home that I rent out in 2019"
please help in solving my issue..Thank you.
You are going to need to capitalize this because an asset and it's cost cannot be separate events. You may be able to claim a 179 deduction but you won't be able to separate it out in order to claim the safe harbor election.
Are these instructions still valid for tax year 2020?
Yes, the de minimis still applies to tax filing for 2020.
The de minimis safe harbor is essential to real estate investors because it allows you to immediately deduct certain rehab expenses that would normally have to be capitalized and depreciated. And this ultimately reduces your taxable income.
Typically, you must capitalize and depreciate capital improvements. But the de minimis safe harbor allows you to make an annual election to immediately deduct tangible property (i.e. appliances) under a certain dollar threshold.
If you have an applicable financial statement (AFS), usually an audited financial statement, the de minimis safe harbor threshold is $5,000. However, for most of us without an AFS, the threshold is currently $2,500.
The de minimis safe harbor threshold applies per invoice, or per item should multiple items appear on an invoice. If additional costs such as shipping or installation fees appear on the same invoice, you must use a reasonable method for applying the cost to each item. But, if these costs are on a separate invoice, you don't have to include them.
Hi. I am electing the de minimis safe harbor election to deduct expenditures up to $2,500 per invoice for my multi-member LLC (Form 1065). I do not have audited financial statements. I found in 2020 TurboTax Business the box to check to create the attachment for the election. However, I did not find any question by TurboTax about expenses under $2,500 in the depreciation section.
I purchased a complex with 20 units and I am repair/remodeling a few units. The others will be done if necessary as they become vacant in 2021. I spent the following:
-Unit 1 $2,405 ($1,705 materials on several invoices and $700 in labor)
-Unit 2 $3,209 ($1,584 materials on several invoices, $625 on 3 appliances, and $1,000 in labor) Splitting the unit into 2 units
Total $5,614
1) Did 2020 TT Business change and eliminate the $2,500 question or was that for Schedule E?
2) Do I need to break-out /report the amount of the election in TT on any schedule other than Form 8825, Line 10?
3) Are there any aggregate limits for the de minimis safe harbor? What is the max that could be deducted this year or future years? Any unit expenditures under $2,500 regardless if I did 6 of them? An aggregate of $2,500 on appliances or anything limits like that? Each invoice? Each Unit?
4) Can any of the expenditures on unit 2 be deducted as de minimis or only unit 1?
5) Do I have to elect the de minimis safe harbor election each year or only the first year?
Thanks for your help.
This election for items $2,500 or less is called the De Minimis Safe Harbor Election. This election is an option you can take each year that lets you write off items $2,500 or less as expenses instead of assets. This election will apply to all your businesses, rental properties, or farms.
Here are the rules you need to meet to take this election:
1. The questions referred to above are in the TurboTax personal tax products (Schedules C and E).
2. No - You do not need to break-out or report the amount of the election. Just include the expenses as you would other repairs, etc. (e.g. Form 8825, Line 10).
3. The IRS states: "If you have an applicable financial statement (AFS), you may use this safe harbor to deduct amounts paid for tangible property up to $5,000 per invoice or item (as substantiated by invoice). If you don't have an AFS, you may use the safe harbor to deduct amounts up to $2,500 ($500 prior to 1-1-2016) per invoice or item (as substantiated by invoice). It mentions no aggregate limits.
4. On Unit 2, see the answer to #3 -- "per invoice or item (as substantiated by invoice)."
5. You have to elect the de minimis safe harbor election each year.
For more information on the de minimis safe harbor election please see the following article on the IRS website: Tangible Property Regulations - Frequently Asked Questions
To make the election in a 1065 return in TurboTax Business please follow these steps:
Continue to the Tax Elections screen and click the Yes box.
On the Election Forms screen, mark the box Election for the De Minimis Safe Harbor (Section 1.263(a-1(f) and click Continue.
Is the deminimis election subject to 2% of the property value like the safe harbor for small taxpayers or any other limits? Are total repairs and maintenance limited if you apply the election?
For example, building cost $200,000, 2% = $4,000
my deminimis limit is $2,500 (non-audited financial stmts)
Example 1:
cabinets $2,000
flooring in one unit 2,000
flooring in another unit 2,000
3 appliances $2,000
Can I deduct $8,000?
Example 2:
I have 20 units and spend:
-$5,000 on one unit that did improve/restore it (labor $2,000 invoices $3,000 - each under 2,500)
-$2,000 on all the other units = $38,000.
I could deduct all $43,000?
I just need to have a consistent policy to expense these items?
Thank you.