Combining safe harbor deductions with improvements in a DIY renovation

Forum|Forum|3 years ago
February 9, 2023
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I have a single rental unit in my owner-occupied building, and last year when the space went vacant I undertook several repairs of walls, floor refinishing, painting etc and also renovated the bathroom - mostly myself but with a $4500 plumbing bill as well. I am really struggling to get through the safe harbor rules. 2% of the unadjusted basis of my building is $5500. I understand that because all the work was done in the timeframe of a renovation that the entirety of the work could be bundled under depreciating assets, but I could really use some relief as the work totaled $15000 and I am very small-time. Is there any reason I can't expense via safe harbor several of the DIY receipts or even the floors ($2400) and then bundle the remaining costs under assets? Or can I carefully extract all receipts related to the wall/floor/etc repairs to maintenance and put the bathroom renovation receipts in the asset category with the plumbing bill? For context I am not a real-estate professional and have an unrelated job.

Not A Product Question

JulieS

Yes, you probably can expense at least some of your costs as routine maintenance.

To be considered routine maintenance your expenses need to meet these criteria:

It is paid for recurring activities performed on tangible property.
It arises from the use of the property in your trade or business.
It keeps your property in an ordinary, efficient operating condition.
You reasonably expect, at the time the property is placed in service, to perform this activity more than once during the 10-year period after you place the building in service; or more than once during the class life of the particular type of property.

For instance, refinishing a hardwood floor, or replacing carpet would meet this standard because you can expect to do it again after a few years of rental use.

You must capitalize the costs of making improvements if the improvements result in a betterment to the unit of property, restore the unit of property, or adapt the unit of property to a new or different use.

Some examples of improvements include rewiring or replumbing of a building, replacing an entire roof, and putting an addition on your building.

Click here to read the applicable section of Publication 535.

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