$2,500 De Minimis Safe Harbor Election - per project or total?

4 Replies

Hi everyone, I closed on a property last week, listed it for rent the day of closing, and am performing some minor changes before it is rented. Based on my understanding of @Brandon Hall BARRRR stategy,  since the property was made available ('For Rent' sign in yard - and yes, i got a time stamped photo) and ready (it is move-in ready), most of the changes I am making can be expensed instead of capitalized. However, I started thinking and realized that - per my understanding of de minimis safe harbor - most of my projects under the $2,500 cap would be expense-able ANYWAYS! For example:

$1,000 - Paint Kitchen and Bath Cabinets

$500 - Refinish the Bathtub and Tile Surround

$1,000 - A/C Maintenance and cleaning

$1,650 - Replace breaker box and run grounds to Kitchen/Bath for GFCIs

Here is the primary question: Does de minimis safe harbor apply to each project (making all of this expenseable) or is it the sum of applicable projects UP TO a $2,500 max?

As long as it is truly placed in service, then yes you are able to expense some repairs rather than capitalizing them.

Under the de minimis rule, it is "per item per invoice", so that means that as long as your "projects" are not grouped together as one item on an invoice you are able to expense them.

@Account Closed as to your specific question.

And I also believe that you can similarly expense work done prior to the property being placed in service. Example:

  • Bought: Jan 1st.
  • Work done in January-February: $20,000, itemized as 10 separate items, under $2,500 each.
  • Placed in service: March 1st.
  • My opinion is that on March 1 you're allowed to deduct the entire $20,000

Warning: some of my colleagues disagree.

@Michael Plaks Is there specific language in any of the regs that led you to that conclusion?

Let's assume that we are in a agreement that you can apply the de minimis safe harbor to costs incurred prior to the placed in service date. My thought would be that any work done prior to the placed in service date that is expensed under the de minimis safe harbor would be considered a Sec. 195 Start Up Cost and amortized over 15 years (after the $5000 start up cost deduction limit).

Originally posted by @Eric Zdanowski :

@Michael Plaks Is there specific language in any of the regs that led you to that conclusion?

Let's assume that we are in a agreement that you can apply the de minimis safe harbor to costs incurred prior to the placed in service date. My thought would be that any work done prior to the placed in service date that is expensed under the de minimis safe harbor would be considered a Sec. 195 Start Up Cost and amortized over 15 years (after the $5000 start up cost deduction limit).

You are confusing Business Start Up Costs - the costs of starting a business - with costs associated with getting an asset put into service.

The 195 Start Up Costs are not to be used for remodeling expenses.  195 Start Up costs are things like legal and accounting fees to start your business, market feasibility research, etc.