Rental Property Improvement

[ghouston3rd]

I added culvert piping to yard to remove ditch at my rental property. Does that qualify as an expense or an improvement? If so, which, and how do I enter in Turbotax. There is a question in the Business Income and Expenses that references two election options (De Minimus Safe Harbor and Safe Harbor Election for Small Taxpayers), would this apply at all? My project cost $3700.

[JamesG1]

The culvert likely counts as an improvement.  Amounts paid are considered an improvement if it results in at least one of the following:

• a betterment to the property
• restoration of the property
• adaptation of the property to a new or different use

The expenditure may be expensed in the current year or may be capitalized to increase your basis to be reported at the time of sale.

In TurboTax Online Premium, follow these steps:

• Down the left side of the screen, click on Federal.
• Down the left side of the screen, click on Wages & income.
• Scroll down to Rentals, Royalties, and Farm.  Click the down arrow.
• Select Start / Revisit to the right of Rental Properties and Royalties.
• At the screen Your 2023 rentals and royalties summary, select Edit.
• Scroll down to Assets.  Click Edit to the right of Improvements, furnishings and other assets.
• Click Edit to the right of Annual safe harbor elections.
• At the screen Let's figure out the best way to handle your assets, see the two options for expensing within the current year and capitalizing your expenditures.

The De Minimis Safe Harbor Election lets you deduct the full cost of items worth $2,500 or less, instead of depreciating.  Some portion of the expenditures which you outlined may qualify under this election.

The Safe Harbor Election for Small Taxpayers lets you deduct improvements costing above $2,500 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.

Or you may elect to capitalize the costs by creating an improvement that is added to Your Property Assets.  To do this select Add an asset and follow the directions on the screen.