How best to deduct/depreciate carpet in a rental with a low unadjusted basis

[adamsweld]

Twenty-seven years ago we bought a rental house, back when real estate costs were low, for $64,000 (unadjusted basis of $57,430). This year we needed to install some new carpet to get the house ready for a new tenant. Am I to understand that we cannot take advantage of the de minimis safe harbor deduction because, since 2% of our unadjusted basis is only $1148, and the carpeting (for 2 different rooms purchased on two different dates) came to $1287, we are over the threshold for using safe harbor? If so, what is our best option for reducing our income this year? Section 179? The 80% special depreciation?

[PatriciaV]

Yes, you are correct. The Safe Harbor Election for Small Taxpayers is limited to 2% of the adjusted basis of the related property. Since improvements are given a useful life for depreciation equal to the rental property itself, Section 179 might not be the best choice if you intend to sell the property in the next 27.5 years, due to the recapture rules for Sec 179. 

Instead, consider taking Special Depreciation for 80% of the cost and depreciating the balance. Special Depreciation is not subject to recapture.