New IRS Regulations?

Question

Has anybody developed a detailed list of repair/improvement items which is segregated to keep under the $500 radar?  If you don't know what I'm talking about and your a landlord I strongly suggest you find out.

Marcia Maynard · Answer

I suppose you are referring to the IRS tangible property regulations TD9636 effective for tax years beginning on or after January 1, 2014.  I'm aware of it and our professional tax preparer keeps us on top of it.  In determining whether we have a deductible repair that can be expensed or a capital improvement that can be depreciated, we do not qualify for the $5000 safe harbor, so indeed we are limited to the $500 threshold.

We don't have a detailed list of repair/improvement items with the intention of keeping under the $500 radar. We just do what we need to do to keep our properties maintained and keep good records of our expenses.  Then our tax preparer sorts it out.  Our depreciation schedules are organized and maintained by our tax preparer.

Steve Babiak · Answer

@Steven Hamilton II has posted about this previously.

Darron Stewart · Answer

Thanks for the post, read up on it a little and still has kinda fuzzy logic as I see it.  If a hurricane takes off part of a roof and $600 for tarping is paid then it should not be counted as an expense instead depreciated, but in another read it would be since the useful life is under 12 months, making it an expense.  Or if a hot water system is repaired with a new hot water heater and billed $475, then that would be an expense vs depreciated, but then back to useful life over 12 months.  Depending on how its read and interpreted...dangerous.   Funny thing is either way taxes are still paid, if depreciated it actually reduces the tax bill because we typically make more money in the future and have less deductions, so IRS actually loses under this new rule.

Victor N. · Answer

@Cal C. Thanks for the post. @Marcia Maynard many thanks for the explanation.

I was not aware of this so a call to my accountant is in order.

Marcia Maynard · Answer

@Cal C. We pay and record expenses per property and by type of expense. We may need to depreciate more things now instead of expensing, but we are in this for the long haul, so in the end I don't think the new regulations will impact us that much.

Cal C. · Answer

I wish I could give a good condensed version of what he thinks and I may get the particulars wrong but he basically says that if you can breakdown repairs by systems and declare you are ahead of time you can break down many repairs into under $500 blocks.  For example you don't have your handyman bill you $700 for repairing the roof, some touch up painting and replacing a faucet.  You have them break that down into three separate bills as long as they are each under $500,  if one of them including materials is over $500 then that needs to be broken down further.

Paperwork nightmare!

Account Closed · Answer

What is the alternative? To make sure you stay under the threshold even if it's not best for the property? Mantaining a quailty unit has to be a priority in my opinion. Can you elaborate exactly what your tax guy is talking about? How do you keep cost down if the market dictates the fix to be more than the IRS alots?

Cal C. · Answer

My tax guy thinks you're going to be in for a costly surprise!  He made it crystal clear landlords have to be very proactive ahead of time and it will absolutely not work to expect your tax preparer to sort it out after the fact.

Dick Rosen · Answer

@Marcia Maynard

Perfect response! :)

New IRS Regulations?

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