Some questions about residential rental property

Technical topics regarding tax preparation.
#1
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Missouri
Hello guys, I am working on my EA and I already passed the business portion last year. I have two questions that I don't believe where covered during my studying:

- A water heater in a rental house is an improvement. It's depreciable life is the same as the house, 27.5 years. Everyone knows a water heater will never last that long, so you'll be replacing it in about 7 years. When a water heater in your asset list dies is the most common way to treat it is to dispose of it as a partial disposition? the asset would be treated as "sold" for $0, the basis would be the adjusted basis of the water heater (cost - taken depreciation) and the resulting loss would post on 4797?

Can't find any examples related to water heaters for partial dispositions, but I assume it works the same, except we don't have to worry about cost segregation since we know the basis.

- As far as safe harbors for repairs, I had not notived that the $2,500 de minimis safe harbor was for costs to "acquire or produce" property. Wouldn't this generally mean it can't be used in a regular rental house operation, and then we have to look at the small taxpayer safe harbor?

Thanks in advance.
 

#2
makbo  
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In The Counting House
Tomahawk674 wrote:- As far as safe harbors for repairs, I had not notived that the $2,500 de minimis safe harbor was for costs to "acquire or produce" property. Wouldn't this generally mean it can't be used in a regular rental house operation, and then we have to look at the small taxpayer safe harbor?

Safe harbor for repairs? I thought repairs were already deductible up front, without any elections or safe harbors. (I recall there is actually an available election in the other direction, to capitalize repairs).

I'm not an expert on TPR (tangible property regulations), but others here are. I know just enough to get by with my client base, and hopefully to know when I'm in over my head.

p.s. congrats on working through to your EA credential.
 

#3
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Location:
Missouri
Sorry, I should have said $2500 safe harbor to treat an "improvement" as if it were a "repair", ie deduct the entire cost that year. I'm thinking new HVAC systems, unfortunately also will never last 27.5 years.

I hadn't noticed the verbiage about "to acquire or produce" which I'm thinking has nothing to do with residential rental activities.

Any feedback on the first part of my question of my original post?

Thanks
 

#4
Coddington  
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We had a thread about that a few months ago. If you look at the language in the regs, the DMSH removes improvements from capitalization the same as acquired or produced assets. The simplest explanation is that Treasury got sloppy with using “produce” and “production” in the -1 regs. But if you check the IRS audit techniques guide and other informal guidance, you’ll see they agree that the DMSH applies to improvements.
-Brian

Director of Tax Accounting Methods & Credits
SourceAdvisors.com

Opinions my own.
 


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