Safe Harbor Questions

2 Replies

I am trying to understand the safe harbors as it relates to expensing rather than depreciating items.  I've read some of the forums and blog posts, and everyone's examples always seem to be slightly different than mine and I want to make sure I approach this correctly.

Under SHST, can I expense the cost of an improvement (in this case, a new water heater) fully in the year it's placed into service?  The only other assumption I would want to clarify is regarding annual expenses less than 2% of the unadjusted basis - I assume this is for maintenance and repair expenses, not the sum of all expenses (interest, taxes, 27.5 year depreciation, etc)?

Thanks for any guidance you all can offer.

@Derek B. , there another limitation as well. 

The expense cannot exceed the lesser of 

(1) 2% of the eligible building property’s unadjusted basis or 

(2) $10,000

Also, I am sure this is not an issue but just to provide you with the complete information, you have to meet the Small taxpayer definition:

Qualifying small taxpayers should have $10 million or less in average annual gross receipts for the three preceding tax years, and eligible building property is a building unit of property that the taxpayer owns or leases with an unadjusted basis of $1 million or less. 

Get the Ultimate Beginner's Guide

Sign up today to receive the popular eBook for free!