Mini-Split for Rental Unit (Safe Harbor?)

[looopson]

I am in the process of completing my 2022 tax return.

I spent approximately $7,000 for the installation of a mini-split at my residential rental unit. I was doing my taxes with the anticipation that I will need to claim this as an asset depreciation over the next 27.5 years.

However, when I put the improvement in Turbotax, it brought me to a page about "safe harbor elections". I was under the impression that safe harbor elections may only be $2,500 per invoice. My invoice for the mini-split exceeds that amount. However, it also states:

The safe harbor election for small taxpayers lets you deduct improvements as expenses this year instead of being depreciated over many years.

You can do this if:

• Your gross receipts, including all your other income, are $10,000,000 or less.
• The unadjusted basis (typically, the original cost) of your building was $1,000,000 or less.
• The cost of all repairs, maintenance and improvements is less than or equal to $10,000 or 2% of the unadjusted basis of your building, whichever is lower.

When I clicked "Yes", it now brings me to a page to either expense it for the entire year, or depreciate over many years.

Did the safe harbor election limit get adjusted from $2,500 to $10,000 this year? 

I would prefer to take the mini-split deduction all at once versus depreciate it over time. I just want to be sure that I'm not going to get into any trouble. According to Turbotax, "Improvements" include:

• Heating and air conditioning systems or ductwork

Would I get into trouble expensing it as a safe harbor instead of depreciating the asset over 27.5 years? 

I should note that this rental unit is an investment, not a business.

[KrisD15]

The safe harbor election is still 2,500 however the full amount could be claimed using Section 179 Deduction. 

According to the IRS:

"Section 179 deduction dollar limits. For tax years beginning in 2022, the maximum section 179 expense deduction is $1,080,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,700,000."

[looopson]

Thanks for the response.

I was under the impression however that residential rental property (for investment purposes) did not qualify for section 179 deductions. Did that change?

[DianeW777]

Under the Tax Cuts and Jobs Act (TCJA) rental properties became eligible to use Section 179 on assets (after 2017) that are not real property (land, buildings or their structural components).  It can be used on such things as appliances.  

The De Minimis Safe Harbor is another rule and there are two types.

1. Improvements
2. Other Assets

De Minimis Safe Harbor for 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.

De Minimis Safe Harbor Other Assets 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/deduct 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.