De Minimis Safe Harbor Expense as part of a larger rental improvement project

[Michael - 47]

I think I have read through all of the posts related to this topic and I'm still unclear on my options.  Here are the facts: I completed a project (finishing a basement) to improve my rental unit.  The total cost of the project was approximately $6,500 but no individual invoice or receipt was over $2,500.  I don't qualify for the Safe Harbor for Small Taxpayers because total repairs and improvements exceed 2% of my adjusted cost basis this year.  I have two questions:

1. Can I use the De Minimis Safe Harbor for all of the expenses of this project because none of them exceed $2,500 even though the cost of the total project is over that?

2. Am I required to use the De Minimis Safe Harbor for these expenses because it is an all or nothing election, or can I choose to capitalize this as one project?

Thank you for any input.

[tagteam · Accepted solution]

1. Can I use the De Minimis Safe Harbor for all of the expenses of this project because none of them exceed $2,500 even though the cost of the total project is over that?

Yes, because the safe harbor is $2,500 or less per invoice or item.

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

2. Am I required to use the De Minimis Safe Harbor for these expenses because it is an all or nothing election, or can I choose to capitalize this as one project?

You are not required to use the safe harbor in the first instance but if you do, then you must use it for all invoices/items with a cost of $2,500 or less.