Can I expense items under de minimis safe harbor that would otherwise be capitalized?

Question

I renovated a unit and it looks like it doesn't make sense to depreciate the costs over 27.5 years since the amount is somewhat small. Am I able to immediately expense costs like new flooring, shower tiles/flooring that would otherwise be capitalized? Yes, I'm aware of the $2,500 non AFS limit and each invoice is under that. I'm not aware of a cap though if there is one.

Breakdown:

- 7 invoices total and they're all unique for each part of reno (separate invoice for flooring, shower tile, demo, etc).

- I'm using the total amount for each invoice and the highest one is $2,500. The rest are a couple hundred bucks per invoice or ~$1k (labor)

Aaron Zimmerman · Answer

@Greg Scott the reason why you'd want to expense vs bonus depreciate is so that you have less recapture upon sale.

Ashish Acharya · Answer

Stan, Great question, and you’re not alone in thinking this through.

The $2,500 de minimis safe harbor is applied per invoice, not per project, so having 7 separate invoices all under $2,500 is totally fine and there’s no overall cap. As long as you make the election with your return, those costs can be expensed if they qualify.

The catch is the repair vs improvement rules. Even under $2,500, items are often considered improvements if they upgrade or restore part of the building, which means the IRS technically expects you to capitalize and depreciate them. Smaller labor or demo costs are usually easier to expense if they’re just keeping the unit in normal operating condition.

Greg Scott · Answer

Why wouldn't you take bonus depreciation instead?

Most of the time, you would do a cost seg analysis, but if you are only interested in expensing the rehab, that can easily be accommodated by bonus depreciation.

Greg Scott · Answer

This is probably one of those times where a good CPA is totally worth the cost.

Bo Smith · Answer

Yeah you're on the right track with the $2,500 safe harbor rule. One thing that trips people up though - make sure each invoice is truly for a separate betterment unit. Like flooring can't be bundled with demo if they're improving the same space. Your CPA will love you for keeping detailed photos and receipts showing the work was actually done too. Are you planning to do more units this year or just the one?

Stan J. · Answer

"Easily" doesn't appear to be the case. I saw your comment this morning and have been looking to see if this reno qualifies for bonus depreciation and I don't think it does. Shower tiles/flooring normally have a recovery life of 27.5 years. Bonus depreciation is for 20 or less years. There might be a case for flooring because I used floating LVP, but online commentary is 50/50 on it. It's essentially left for interpretation, which is not a good idea from the rule makers.

Can I expense items under de minimis safe harbor that would otherwise be capitalized?

Can I expense items under de minimis safe harbor that would otherwise be capitalized?

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