Rental property and improvement question

[CaddyGrn]

We purchased a used wheelchair lift and installed it for our rental property.  It was used and purchased from a private individual, but we have a decent receipt.  My question is: do I add up the various installation expenses and deduct the entire amount (which would fall under the max amount) for this year, or is it something that should be depreciated out?  Or do I need to use various parts purchased to help install it as maintenance, or something else?  Thanks.  I appreciate any help on the best way to deduct this expense.

[DianeW777 · Accepted solution]

Yes, you do add all the costs of purchase and installation to arrive at the total cost of the wheelchair lift.  If you are referring to the Safe Harbor Election instead of depreciating it, you can decide based on the information below.  Do not enter them as an asset if you choose the Safe Harbor method (see the instructions below).

You must determine if it is an attachment to the structure of the rental home (a capital improvement attachment) or if it's a separate structure.  

DeMinimis Safe Harbor (DMSH) election to take the expense in full.

• What can I depreciate or expense with the business safe harbor method?
• How do I handle capital improvements and depreciation for my rental?

If you determine the wheelchair lift  would be considered as a capital improvement to the property and would fall into the Safe harbor Election for Small Taxpayers.  These are two different safe harbor methods.

• Rules for this method for capital improvements:
  • 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

Either or both safe harbor elections would be entered in the rental activity using Miscellaneous expenses if you choose this method.

• Enter your description and amount 

Keep close track of these expenses because they will be used to reduce cost basis at the time of a future sale, thereby increasing gain at that time.

[CaddyGrn]

Thank you for the in-depth response.  I have used the "safe harbor" before for some major improvements.  I do have a follow-up question if you should see this.  I have had this property for many years and will soon "run out" of years to depreciate the building.  Even if that happens, can improvements such as this continue to be depreciated even though the building is past 27 years of depreciation?

[AnnetteB6 · Accepted solution]

Yes, if the improvements are being depreciated then their depreciation is separate from the depreciation of the building itself.  

That means that even if the building itself is fully depreciated, the depreciation of the improvements will continue until they are fully depreciated (assuming you continue to own the property for that long).

@CaddyGrn