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.
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