No Itemized Invoice De Minimis Safe Harbor

[Melissa Koon]

I have a rental home and had the HVAC and water heater replaced last year. The furnace stopped working and was in need of costly repairs that would likely only prolong a replacement. Since they were already replacing the furnace, the HVAC contractor also talked me into replacing the AC and water heater at the same time since they were also 20+ years old. Fast forward to doing my taxes now. I have a general invoice for the $7950 cost but it's not itemized, making it difficult to claim de minimis safe harbor. I've reached out to the HVAC rep and he is unresponsive to my request for an updated invoice. Do I have any options outside of capitalization? 

Thank you in advance for your input. 

[Jeff Nash]

@Melissa Koon

I would use reasonable methods to determine the breakout of the cost on the invoice between those components if you can't get the company to cooperate.  You also have bonus depreciation, 179 expensing, and this exception as well:

Small taxpayer exception for eligible building property

Qualifying small taxpayers can elect to deduct the cost of improvements made to eligible building property (Regs. Sec. 1.263(a)-3(h)). Qualifying small taxpayers have $10 million or less in average annual gross receipts for the three preceding tax years, and eligible building property includes a unit of property constituting a building, condominium, cooperative, or leased building or portion of a building with an unadjusted basis of $1 million or less. To be eligible for the exception, the total amount of repairs, maintenance, and improvements for the property for the tax year may not exceed the lesser of $10,000 or 2% of the property's unadjusted basis. If the total amount paid exceeds the safe-harbor threshold, the safe harbor does not apply to any amounts spent during the tax year.

[Melissa Koon]

Thank you for this! I had considered using reasonable methods to break out the costs (I’m no accountant) but didn’t know how it’d fly with the IRS. I’ll definitely look into breaking out the costs, bonus depreciation, and 179 expensing.

I believe I don’t qualify for small taxpayer exception for eligible building property. The property’s unadjusted basis is less than $200k, putting it over 2%.

[Michael Plaks]

@Melissa Koon

Opinions of my colleagues on this question may vary. The only option I see available to you is separating the water heater portion from your total bill and applying bonus depreciation to the water heater. (Bonus depreciation is usually better than deducting it under de minimis.)

The other two pieces are furnace and AC, compressor I assume, both parts of the HVAC system. As such, they cannot be split from each other and both must be capitalized and slowly depreciated. Not eligible for any of the de minimis, bonus depreciation or Section 179.