Small Taxpayer Building Safe Harbor

[Kram BergGold]

My client bought a $900 refrigerator for a rental house. There were no other repairs or maintenance. The unadjusted basis is $200,000 so the 2% of unadjusted basis is no problem. Can the refrigerator be expensed under IRS TD 9636 or is it only work done to the structure that is covered by this safe harbor?

[TXEA]

Good Question

Initially, I thought yes......Then I read the following:

TD 9636 VI, 2.E.

Under the safe harbor for small taxpayers, a taxpayer includes amounts not capitalized under the de minimis safe harbor election of §1.263(a)-1(f) and under the routine maintenance safe harbor for buildings (discussed later in this preamble) to determine the annual amount paid for repairs, maintenance, improvements, and similar activities performed on the building. If the amount paid for repairs, maintenance, improvements, and similar activities performed on a building unit of property exceeds the safe harbor threshold for a taxable year, then the safe harbor is not applicable to any amounts spent during the taxable year. In that case, the taxpayer must apply the general rules for determining improvements, including the routine maintenance safe harbor for buildings. The taxpayer may also elect to apply the de minimis safe harbor under §1.263(a)-1(f) to amounts qualifying under the de minimis safe harbor, regardless of the application of the safe harbor for small taxpayers.

Notice the middle of line 2 "on the building"

Then end of line 2 "on a building unit of property"

Since the refrigerator is not a building unit of property, it appears that it does not qualify.

And, given the cost, not eligible for DMSH.

[Kram BergGold]

Thanks

TXEA,
I was having a moment of wishful thinking. Thanks for keeping me on the straight and narrow.

[Jiggers]

Doesn't this qualify for the 50% bonus depreciation, assuming it is new?

[Gretel]

Yes, bonus is allowed for new assets.

[mactoolsix]

So because the refrigerator is not part of the building UOP the replacement cannot be considered a repair?

We can expense the entire roof replacement but not a refrigerator?

[TaxGuyBill]

We can expense the entire roof replacement but not a refrigerator?

Why do you think we can expense an "entire" roof?

[mactoolsix]

Why do you think we can expense an "entire" roof?

2015-14 page 88 example (c)

http://www.irs.gov/pub/irs-drop/rp-15-14.pdf

Y, a calendar year taxpayer, acquired and placed in
service a building and its structural components in 2000. Y depreciates this building
and its structural components under § 168. The roof is a structural component of the
building. Y replaced the entire roof in 2010. On its federal tax return for the taxable
year ended December 31, 2010, Y did not recognize a loss on the retirement of the
original roof and continues to depreciate the original roof. Y also capitalized the cost of
the replacement roof and has been depreciating this roof under § 168 since June 2010.
In accordance with § 1.168(i)-8T(c)(4)(ii)(A) and (B) and section 6.29(3)(a) and (b) of
the APPENDIX to Rev. Proc. 2011-14, as modified by Rev. Proc. 2012-20, 2012-14
I.R.B. 700, Y filed with its federal income tax return for the taxable year ended
December 31, 2012, a Form 3115 to treat the building as an asset and each structural
component of the building as a separate asset for disposition purposes and also to
change from depreciating the original roof to recognizing a loss upon its retirement. The
amount of the net negative § 481(a) adjustment on this Form 3115 is $10,000, which is
the amount of the loss recognized upon the retirement of the original roof. . . .

Y decides to
apply Prop. Reg. § 1.168(i)-8 for its taxable year ending December 31, 2013, but
decides not to make any late partial disposition election under section 6.33 of this
revenue procedure. In accordance with section 6.29(3)(e) of this revenue procedure, Y
files a Form 3115 with its 2013 federal income tax return to change to treating the
original building (including its original roof and other original structural components) as
an asset and the replacement roof as a separate asset for disposition purposes.
Because Y is not making a late partial disposition election for the original roof, Y does
not recognize the loss of $10,000 upon the retirement of the original roof under Prop.
Reg. § 1.168(i)-8 and Y will continue to depreciate the original roof. Assume the
depreciation deduction for the original roof is $500 for the 2012 taxable year. Thus, the
net positive § 481(a) adjustment for this change is $9,500 (loss of $10,000 claimed on
the 2012 return for the retirement of the original roof less depreciation of $500 for the
original roof for 2012) and is included in Y’s taxable income for 2013.


Under the new regs the replacement roof can be expensed or use a partial disposition to expense the "old roof" and capitalize the new roof.

Am I totally mis-reading this?

[TXEA]

So because the refrigerator is not part of the building UOP the replacement cannot be considered a repair?

We can expense the entire roof replacement but not a refrigerator?

That's seems to be what the repair regs say.