STSH Rule...Have I got it everything?

[RightOn]

Taxpayer has tons of receipts because some major improvement jobs have been done at his rental property in 2014.

The unadjusted basis of the rental property is less than 1 million. He elects to adopt the Small Taxpayer Safe Harbor Rule. So if the total expense of the improvement works is less than $10,000 and also less than 2% of the unadjusted basis of the property, he can expense the full amount in 2014.

Have I got everything correctly?

[BHoffman]

It's the LESSER of either $10,000 OR 2% of unadjusted basis. If you're below both of these, then I'd say you're good to go.

[RightOn]

It's the LESSER of either $10,000 OR 2% of unadjusted basis. If you're below both of these, then I'd say you're good to go.

Thank you.

I am just curious, in case the total improvement expenses just exceeds $10,000, let's say it is $10,010, does the first $10,000 still get the STSH?

[Gretel]

I don't think so. You also have to count ALL R&M items not just the improvements.

[RightOn]

I don't think so. You also have to count ALL R&M items not just the improvements.

let's assume the R&M has been counted and included in the total already.

So if the total expense is $9,999, the full amount can be expensed in 2014.

But if the total expense is $10,010, a determination has to be made on each invoice separately based on the $500 De Minimus Safe Harbor rule (assuming the taxpayer made the DMSH election).

Is it correct?

[Gretel]

This is how I understand it.

[TomJ]

I don't think it's just total improvement expenses, it's total repairs, maintenance, improvements, and similar expenses that need to be under $10k to use STSH.

[RightOn]

I don't think it's just total improvement expenses, it's total repairs, maintenance, improvements, and similar expenses that need to be under $10k to use STSH.

Thank you. Yes, I am aware of what you said. Actually I have said in post #5 that the scenario is based on the assumption that R&M has been incliuded in the total already to make the determination.

[RightOn]

One last issue about the De Minimis Safe Harbor that I still do not quite understand.

Taxpayer went to Home Depot to buy materials and paid $550. The total invoice is over $500 so it has to be capitalized.

But, let's say he has separated the purchase into two trips. He went in to buy $300 of the same materials first. And then he returned 10 minutes later to buy the other $250 of the materials. Now these same $550 worth of materials can be expensed in the current year based on the DMSH.

Have I misunderstood anything?

[Gretel]

No, it can't be expensed, there is a provision to prevent smart people from misusing this, which I do not have handy.

[TomJ]

It can be applied per invoice or per item, so it shouldn't matter if a $250 purchase and $300 purchase are on the same invoice if they are two separate units of property. They're both deductible if the DMSH is elected and the other provisions are followed. If it was one purchase and $300 was for the purchase and $250 was for the installation / service and they were on the same invoice, then the DMSH could not be applied to that $550. Also, if it was one unit of property (for example a computer) and you got the vendor to bill you separately for the processor, hard drive, RAM, case, power supply, etc., then the DMSH could not be applied. That's the way I understand it.

[Gretel]

I believe we do not have enough information to make this judgement call. I agree if we are talking about 2 appliances on one invoice. But if materials were bought to repairs or construct something, all the materials is one item even if you have 10 different invoices - it's called the anti-abuse rule. This is even true if purchases cover two different tax years.