De Minimis Safe Harbor Election.

[ColeenD3]

@ Jo-Homeseller

This LINK may help you.

[Jo-Homeseller]

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.

[MaryK4]

You would have to enter each in the Business Asset section.

@Jo-Homeseller

[DanKar73]

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.

[DaveF1006]

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.

[lorierichards]

Are these instructions still valid for tax year 2020?

[RayW7]

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.

[susan483good]

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.

[Irene2805]

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:

• You don't have an applicable financial statement (AFS)  [If you do have an AFS you can deduct amounts paid for tangible property up to $5,000 per invoice or item.]
• You have a consistent process for how you record expenses and assets;
• You record these items as expenses on your books/records;
• The cost of each item as shown on your receipt is $2,500 or less.

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:

@susan483good

1. Click Federal taxes > Other

2. Continue to the Tax Elections screen and click the Yes box.

3. On the Election Forms screen, mark the box Election for the De Minimis Safe Harbor (Section 1.263(a-1(f) and click Continue.

   

[susan483good]

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.

[KathrynG3]

No, the de minimis safe harbor election is separate from the routine maintenance election. The de minimis safe harbor election is referencing receipts that are individually less than $2,500.

Not necessarily would the repairs & maintenance election be limited. It will depend on the 2% property value amount.

In example 1, it may be better to claim bonus depreciation and/or Section 179 deduction because these are capital improvements to allow the unit to be rented. This treatment still allows for these improvements to be fully deductible in the same year as the expense.

Enter them as leasehold improvements under Assets. TurboTax will prompt you regarding whether you want to claim bonus depreciation and/or Section 179.

In example 2, if these 20 units are in one building, then 2% would have been exceeded. It would be more expected to capitalize these improvements and claim bonus depreciation. 

The effect will be the same, but the presentation will require that you first list these assets before you depreciate them rather than listing them automatically as repairs and maintenance expenses.

See Publication 527 Residential Rental Property regarding Depreciation for more information, which also addresses de minimis safe harbor and the safe harbor for routine maintenance, as seen in the screen shot below. 

[Artisan]

@KathrynG3 

I am so confused.

Do the De Minimis Safe Harbor Election and the Safe Harbor Election for Small Taxpayers only apply to rental units?  All the searching I do only speaks to rental property.

We own a sign business and made improvements to a building that we own (with a mortgage).  The value of the building following improvements is $110-$120k.  The total cost of the improvements was $36.718; however, only two individual receipts were over $2,500 ($16,397 and $5,100 respectively - both to our contractor).  Do these items fall under the two Safe Harbor Elections or are the Section 179 items?  If they are Sec. 179, are they eligible for the Bonus Depreciation?  Is that the same as the Special Depreciation Allowance?  Also, I don't see 'Building Improvements' in the Sec. 179 dropdown.  This is a building that we use for our business - no leases involved anywhere.

Thanks for your help!

[KathrynG3]

1. No, the De Minimis Safe Harbor Election and the Safe Harbor Election for Small Taxpayers apply to rental units as well as all other businesses or farms reported on your tax return.
2. The two receipts exceeding $2,500 would not be eligible for the De Minimis Safe Harbor Election because of being over $2,500. For the Safe Harbor Election for Small Taxpayers which would apply for building improvements, here are the rules you need to meet to take this election:
   1. Your gross receipts, including all your other income, are $10,000,000 or less.
   2. Your eligible building has an unadjusted basis of $1,000,000 or less.
   3. 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

Keep in mind that "Leasehold Improvements" include improvements to buildings owned or leased. It is a definition that makes the expense eligible for depreciating the amount over a 15 year life, rather than 27.5 years.

Please see this excellent summary to help categorize these expenses: @TurboTax Expert Alum RobertG's response Leasehold Improvement Deprecation.

TurboTax defines improvements as:

You paid for an improvement to your property if you spent money to enhance your property, restore your property, or adapt your property to a new or different use. 

Examples of improvements include:

- Installation of new plumbing or wiring
- Addition of paneling to a room
- Installation of a fence
- Paving of a driveway
- Installation of new cabinets
- Addition of a new roof
- Assessments for streets, sewers, and sidewalks
 

TurboTax will properly classify these expenses by how the questions are answered. To do this in TurboTax,

1. begin by adding the expense. In your rental reporting, scroll to the expenses and check Add Expense.
2. At What additional expenses and assets did you have, under Assets, check the box for  Improvements, furnishings, and other assets and Continue.
3. If you are returned to the rental summary, scroll to Rental property under EXPENSES/ASSETS (DEPRECIATION): Assets and select Edit.
4. At Depreciation for Your Rental Property, select Yes to Do you have assets for this property that can be depreciated?
5. Follow through the prompts answering according to your circumstances. The improvements are for Rental Real Estate Property.

The depreciation treatment including eligibility for Section 179 and/or Bonus Depreciation will depend on what made up the contractor expenses for how to classify the improvement. There are three options.

• If it is residential rental real estate itself, the portion that is not land must be depreciated over 27.5 years. This would not apply for improvements.
• If they included new appliances, carpet and furniture, then it could be eligible for Section 179 and/or Bonus depreciation. 
• If the expenses were for Land Improvements, then they could be eligible for the Special Depreciation Allowance (Bonus) which would allow for a 100% deduction.
  • Keep in mind that there may be different state tax treatment: Some states conformed to the Federal 2008 Stimulus Bonus Depreciation: Special Depreciation Allowance, while others did not. The states that treat this Special Depreciation Allowance differently are:
    • 
       - Alabama
       - Arizona
       - Arkansas
       - Connecticut
       - District of Columbia
       - Georgia
       - Hawaii
       - Illinois
       - Indiana
       - Iowa
       - Kentucky
       - Maine
       - Maryland
       - Massachusetts
       - Minnesota
       - Mississippi
       - New Hampshire
       - New Jersey
       - New York
       - North Carolina
       - Ohio
       - Pennsylvania
       - Rhode Island
       - South Carolina
       - Vermont
       - Virginia
       - Wisconsin

For more information, see: IRS summary of the Safe Harbor Election for Small Taxpayers and the Tangible Property Final Regulations.

@Artisan

[dvallee40]

Hello,

Quick question.  I already filed my 2020 taxes but forgot to elect the De Minimus Safe Harbor $2,500 for two of my five rental properties for a new garage door ($800), blinds ($1,800), fridge ($1,900), washer ($500) dryer ($500) and garage door opener $250).  I usually use TT Premiere (rental properties and investments) and since I have never been able to find the election forms I just physically mail it in to the IRS each year.  I expensed each of these items under either other or repairs.  Since I did not file my Election what should I do?  Any suggestions?   

[loellen1]

We made significant repairs and improvements  to a rental property last year prior to selling. When I added the improvements as an asset, because the property was sold within the same year as the improvements, Turbo Tax treated the improvements as Short Term Capital Gain instead of adding it in cost basis. For depreciation purposes, I also included the improvements as land improvements so it that it will not be depreciated.