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New Member

De Minimis Safe Harbor Election.

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?


19 Replies
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Level 14

De Minimis Safe Harbor Election.

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:

  • You don't have an applicable financial statement (most people don't).
  • 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.


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:

  • 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

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

  1. Click on Federal Taxes > Wages & Income [In TT Home & Biz:  Business > Continue > I'll choose what to work on]
  2. In the Rental Properties and Royalties section, click the Start/Update button.  
  3. If you have already started adding information about your business, you will be asked if you want to review your rental and royalty information.  Click the Yes box. 
  4. When you come to the Rental and Royalty Summary screen.  Click on the Edit box next to the property.   
  5. If you haven't already started adding information about the property, continue through the screens to enter the needed information.
  6. You will now be on the Review Your [property name] Rental Summary screen.  
  7. In the Assets/Depreciation section, click on the Start/Update box.
  8. When you come to the screen, Did you buy any items that each cost $2,500 or less in 2015? mark the Yes button and click Continue.  (See Screenshot #1, below.)
  9. On the screen Let's see if you qualify to deduct these items as expenses, mark both of the Yes buttons and click Continue(Screenshot #2)
  10. On the Now, let's review each item you bought screen, mark whether all your new assets cost $2500 or less.  (Screenshot #3)
  11. If you mark that every item cost $2,500 or less, you will be brought to the Rental Summary screen.  You have elected the De Minimis Safe Harbor provision.  Proceed with Step 2, below.
  12. If you mark that some cost above $2,500, you will be asked Did you make improvements to rental in 2015?
  • If you say Yes, you will be taken through the screens for the Improvements election.
  • If you say No, you will see the screen Do you have any items that aren't covered by your elections?  Proceed through the screens to enter these assets.  (Screenshot #4)

 

Step 2.  Enter your election-related items as other expenses.

  1. On the Rental Summary screen go to the Expenses section and click on the Start/Update box. Click I'll choose what I work on. 
  2. Continue to the Any Other Expenses? screen and enter the description and amount paid for the assets. Click Continue when finished.  (Screenshot #5)
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Returning Member

De Minimis Safe Harbor Election.

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 ?
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Level 7

De Minimis Safe Harbor Election.

@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).
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Level 15

De Minimis Safe Harbor Election.

Original post is two years old.
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Returning Member

De Minimis Safe Harbor Election.

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 ?
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Level 7

De Minimis Safe Harbor Election.

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).
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Returning Member

De Minimis Safe Harbor Election.

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 ?
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Level 7

De Minimis Safe Harbor Election.

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-taxe...>

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.
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Returning Member

De Minimis Safe Harbor Election.

How do I know if I have successfully elected De Minimis Safe Harbor Election ? I am using online TT LIVE Premiere.
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Returning Member

De Minimis Safe Harbor Election.

"#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 ?
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Returning Member

De Minimis Safe Harbor Election.

p587. Does p16 describe what I am looking for ? Help is appreciated.
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Returning Member

De Minimis Safe Harbor Election.

How about p535 ? Does p4 describe what I am looking for ?
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Returning Member

De Minimis Safe Harbor Election.

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.

 

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Expert Alumni

De Minimis Safe Harbor Election.

To access the de minimis elections in the 1065 (partnership) return, please follow these steps:

  1. While in the return, type de minimis in the Find box at the top right of your screen and click Find.
  2. The first entry in the results should be the hyperlink:  Jump to de minimis safe harbor
  3. Click on the link.
  4. On the Election Forms screen, mark the appropriate box and click Continue.
 

 @Jo-Homeseller