Defining “item” for de minimis safe harbor

[ColoRock]

I had a concrete sidewalk and concrete patio poured for my rental unit in 2020. To me, they are separate “items”. Each functions independently of the other.

But the combined cost was over $2500, and the contractor did not split the cost of each “item” on the invoice.

If I split the cost myself based on square footage (super easy/logical to do), it would easily put each under the $2500 threshold for expensing under de minimis safe harbor rather than capitalizing.

Is this allowed? Seems silly to ask the contractor to send me a more detailed invoice in this particular case.

[Opus 17]

No, I don’t think you can split up the job. To me, that sounds like replacing your roof and getting separate invoices for the rafters, the plywood decking, and the shingles.  Also, the safe harbor  that you are referring to applies to tangible property, and you are discussing an improvement to real property.

I think there is another option, which I have copied from a prior question and answer by user @Anonymous_ 

There are actually two "safe harbors" that may be elected. 

The first one has already been mentioned and it applies to certain tangible personal property up to $2,500 per invoice. That would include such items as stoves, refrigerators, washers/dryers, furniture, and like items.

The second safe harbor is the Safe Harbor Election for Small Taxpayers, which applies to certain improvements; the requirements for that are set forth below.

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.

[#3]

There are actually two "safe harbors" that may be elected. 

The first one has already been mentioned and it applies to certain tangible personal property up to $2,500 per invoice. That would include such items as stoves, refrigerators, washers/dryers, furniture, and like items.

The second safe harbor is the Safe Harbor Election for Small Taxpayers, which applies to certain improvements; the requirements for that are set forth below.

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.

[ColoRock]

Thanks so much! I agree, probably can’t separate the concrete job into its parts, so as a land improvement will instead depreciate over 15 years or I can use bonus depreciation.

But it sounds like you are saying, even if the concrete job was under $2500 it wouldn’t qualify for de minimus safe harbor because it’s not personal property?

My NOLO book says it’s a land improvement, which is classified as real property. And it says de minimis applies to tangible property, which is personal property and real property. And direct quote from IRS “Under the final tangibles regulations, you may elect to apply a de minimis safe harbor to amounts paid to acquire or produce tangible property”.

I ask because I made another land improvement this year ($800 fence) that I thought was a slam dunk for de minimis!

Thoughts?

[Opus 17]

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@ColoRock wrote:

Thanks so much! I agree, probably can’t separate the concrete job into its parts, so as a land improvement will instead depreciate over 15 years or I can use bonus depreciation.

But it sounds like you are saying, even if the concrete job was under $2500 it wouldn’t qualify for de minimus safe harbor because it’s not personal property?

My NOLO book says it’s a land improvement, which is classified as real property. And it says de minimis applies to tangible property, which is personal property and real property. And direct quote from IRS “Under the final tangibles regulations, you may elect to apply a de minimis safe harbor to amounts paid to acquire or produce tangible property”.

I ask because I made another land improvement this year ($800 fence) that I thought was a slam dunk for de minimis!

Thoughts?

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I'm having a hard time finding a clear definition, if you have a book that says that real property is included in tangible property, you might just go with that.

Intangible property is one thing (like patents and copyrights), and real property is something else, and tangible personal property is yet something different, under different IRS regulations.  I'm having a hard time finding a clear statement that real property is included as a sub-class of tangible property.  (In other words, that the term tangible property includes both tangible personal property and real property as two different types.). The closest I can come is paragraph (b)(3) here,

https://www.law.cornell.edu/cfr/text/26/1.263(a)-2

so I would probably be happy to rely on a book written by professional experts who should know what they are talking about. 

[Hal_Al]

I agree with you; those are two separate assets could have been written off separately.  That said. I believe that separate invoice is critical to being able to do so.