De Minimis Safe Harbor and Safe Harbor for small taxpayers

De Minimis Safe Harbor and Safe Harbor for small taxpayers

Investor · Daly City, CA · Member since 2017 · 5 posts · 0 votes

I understand that the De Minimis Safe Harbor is for real properties that are less then $2500 each and Safe Harbor for small taxpayers is for improvements that are no more than 2% of the cost basic or $10K whichever is less.  

Now let say I have remodeled my rental and the cost consisted of new floor $3000, new windows $3000 and new stove $2000, new fridge $2000, new washer $1000 and new washer $1000.

Assume that my rental's SHST amount is $6000.  That means I can expense the new floor $3000 and the new windows $3000 under SHST.  And I can also expense the stove, fridge, washer and dryer under DMSH.  

Here is my question.  Under which category of expense on my tax return I should put all these expenses.  According to Turbox Tax, I should put all the SHST expense under repair and list out each item under Other Expenses for DMSH.

Is that the correct way to do it?  If I have some small expenses under the maintenance category, will that count against my $6000 SHST limit?  And If my DMSH expense consists of many small items that are under $2500 such as chairs, tables, sofa, rugs, blinds, curtains, do I really need to list out all of them under Other Expenses or can I lump sum them in one item and call it Living Room upgrade?

Thanks in advance.

John

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  • Investor · Shawnee Mission, KS · Member since 2015 · 423 posts · 114 votes
    9y

    very interesting questions :)

    I am in the process of figuring it out for myself, 

    as I understand 2% limit is about maintenance + repairs + improvements

    In my experience, my expenses are usually higher in these 3 categories, because some units need full rehab after long-term clients.  And here I use DMSH for appliances, somebody offered that we could apply DMSH to floating allure floor and carpet (but I am not sure :)

    If I am lucky and had mostly improvements under 2% - SHST will help a lot, but my big improvements - windows, roof, new kitchen - usually higher than 2%

    as I understand we could use SHST and DMSH at the same time and they do not limit each other, but Maintenance Safe Harbor is included in the limit of SHST.  But I would think that regular maintenance is a current year expense anyway.  If repairs are higher than 2% they are still current year operational expenses and we deduct them. 

    I was trying to perfect my understanding of these comments:

    https://www.irs.gov/businesses/small-businesses-se...

    I will be very happy to hear how other people leverage these new advantages

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