Real Estate Safe Harbor

[Kram BergGold]

2% of my client's unadjusted basis is $3,150. In 2013 she spent $560 for maintenance, $541 for repairs, $87 for supplies, redid a chimney for $1,950 and replaced a hot water tank for $475. So total spent is $3,613. So she does not qualify to use the safe harbor. At first I thought she would but it appears from what I have read that things like lawn mowing and gutter cleaning in maintenance have to be added to repairs and iomprovements to see if the test is met. Does anyone disagree?

[Gretel]

Yes and No

2% of my client's unadjusted basis is $3,150. In 2013 she spent $560 for maintenance, $541 for repairs, $87 for supplies, redid a chimney for $1,950 and replaced a hot water tank for $475. So total spent is $3,613. So she does not qualify to use the safe harbor. At first I thought she would but it appears from what I have read that things like lawn mowing and gutter cleaning in maintenance have to be added to repairs and iomprovements to see if the test is met. Does anyone disagree?

Yes, that all costs need to be added. No, the new repair regulations start in 2014 with some choices available if using the temporary regulations. Then there is another safe harbor rule for routine maintenance and an election to expense any item under $500. This election is only available if a written policy exists at the beginning of the tax year. I understand this to apply to all taxpayers not just to taxpayers running a business but am not sure.