Question

Safe harbor for rental residential property

Forum|Forum|5 years ago
March 7, 2021
1 reply
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1.) In layman terms, what exactly is safe harbor?

2.) I have a rental residential property in Michigan (with gain ~120 in 2020 after considering expenses and depreciation. It was not rented in entire 2020). Do I qualify for safe harbor?

I have been managing the property and worked with a broker to find tenants.

Thanks,

Gulsheen

ColeenD3

You say the property was not rented in 2020. Did you try to find a renter? Was it ready and available to be rented?

De Minimis Safe Harbor Election

This election for items $2,500 or less is called the De Minimis Safe Harbor Election. This election is an option you can take each year that lets you write off items $2,500 or less as expenses instead of assets. Expenses typically reduce your income by a larger amount than depreciating an asset over multiple years does. This means you could get a bigger refund.

If you decide to take this option, a form called De Minimis Safe Harbor Election will show up in your tax return. This election will apply to all your businesses, rental properties or farms.

Here are the rules you need to meet to take this election:

You don't have an applicable financial statement (most people don't).
You have a consistent process for how you record expenses and assets.
You record these items as expenses on your books/records.
The cost of each item as shown on your receipt is $2,500 or less

G

gulsheenkAuthor

Thanks, ColleenD3, for details on Safe Harbor.

My condo was rented for ~9 months (not entire 2020) and I have already included maintenance expenses under Wages & Income --> section Rental Properties and Royalties.

My maintenance expenses are less than $2,500 and have selected that I do not qualify for safe harbor. Please let me know if this needs to be updated.

Best,

Gulsheen

ColeenD3

If you don't think you qualify, then you are correct to indicate that you don't. I was asking about having the property be available to rent, since if it were not, you would not have been able to take expenses.