Please help me understand the Safe Harbor Election for Small Taxpayers (SHST) and the De Minimis Safe Harbor Election (DMSH).

[manbeing]

 Safe Harbor Election for Small Taxpayers (SHST) 

  De Minimis Safe Harbor Election (DMSH)

I know the threshold for SHST is $10,000 for rental improvements and $2,500 for a single item under DMSH.

1. Can I use both SHST and DMSH?
2. Do regular rental repairs, such as a leaky faucet replacement, count toward the SHST threshold or not?

Is the example below correct?

• HVAC Replacement -improvment($9,500) → Can be expensed under SHST.
• Refrigerator Replacement ($2,000) → Can be expensed separately under DMSH since it's under $2,500 per item.
• Regular Rental Repairs ($3,000) → Normally deductible as an expense (repairs are not considered capital improvements).

[DianeW777 · Accepted solution]

Yes, you can use both in a single tax year if you qualify. No, regular repairs is an expense and does not have to be depreciated and therefore the DeMinimis Safe Harbor (DMSH) does not come into play.

Examples response:

• You do meet the specific rule for taking the Safe Harbor Election for Small Taxpayers for building capital improvements.  Based on this rule you can take the $9,500 as an expense under this safe harbor.
  • 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
• Yes, the refrigerator replacement falls under the DMSH expense election since the cost is less than $2,500.
• Yes, the rental repairs are expensed as repairs.

[manbeing]

Thank you so much @DianeW777 

If I have multiple rental properties, each rental property is reported individually in terms of income, expense and assets depreciation,etc. Does the threshold of  Safe Harbor Election for Small Taxpayers, $10,000 can be applied to each individual rental property?  or All rental properties share one $10,000 threshold?

Thanks!

[DianeW777]

The IRS seems to apply this to the tax year.

• If all the safe harbor requirements are met, an interest in rental real estate will be treated as a single trade or business. It may consist of an interest in a single property or interests in multiple properties if you chose to group them together. 
• IRS Tangible Property -FAQs

If you have chosen to group properties then it could be considered across all properties.

• If you add similar rental properties to your inventory and you have elected to group properties for the safe harbor, the newly acquired properties are automatically part of the group.  Once you elect to group properties you must continue to group in future years. 

@manbeing