Filing repairs for rental property

1 Reply

I'm hoping someone can give me some insight to this rather individualized question.  I own a 2 story duplex and rent the 1st floor and live on the second floor.  In 2017 I built a laundry room with hook-ups for both my washer/dryer and my tenants washer/dryer.  Expenses included: plumbing, duct work, electrical, and lumber.  I'm looking back at the expenses for this and not sure how to sort them out since we both use the room.  My best guess was to split the cost in half and itemize that way since we share the room but I honestly have no idea.  Any help would be much appreciated.  Thank you in advance!

-Dan

@Daniel Rines

If the cost were deductible as expenses, then yes you would split the cost 50/50. 

However, the cost such as plumbing, ductwork, electrical, and lumber have to be capitalized and added to the basis of your house unless you meet any of these: 

1)  The total cost is less than 2500. ( not just plumbing or electrical- total ) 

De minimis safe harbor

The safe harbor applies to amounts paid during the tax year to acquire or produce what the regs call a “unit of property” (UOP), you must meet these requirements:

  • (1) at the beginning of the tax year, the taxpayer has written accounting procedures treating as an expense for non-tax purposes amounts paid for property costing less than a specified dollar amount (which will be 2500 for you), or with an economic useful life of 12 months or less;.
  • (2) the taxpayer treats the amount paid for the property as an expense on its books and records in accordance with its accounting procedures. ( do this on your bookkeeping software or whatever you utilize)
  • (3) the amount paid for the UOP doesn't exceed $2,500. as substantiated by invoice
  • Note: The cost for the Unit of Property includes l additional costs (for example, delivery fees, installation services, or similar costs) if these additional costs are included on the same invoice with the tangible property. 
  • The UOP for a building generally is the building and its structural components so you cant look at plumbing and other costs as one UOP. 

2)  You qualify for the  Small Taxpayer Safe Harbor Election.

A qualifying taxpayer can elect not to capitalize (and, thus, can deduct) costs to improve an eligible building property if the total amount paid during the tax year for repairs, maintenance, improvements, and similar activities performed on the property does not exceed the lesser of 

  •  2% of the eligible building property’s unadjusted basis
  •  $10,000.

An “eligible building property” is a building, condominium, cooperative, or leased building (or portion) that has an unadjusted basis of $1 million or less. 

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