rental

in a rental property, if i remove paneling, install new sheet rock, and install a drop ceiling for 4k

is that locked into 27.5 leasehold improvement?

Those are two different improvements. Were both of them under $2500 each? Before going to the DMSH, was the sheetrock throughout the property? Just one room out of several? Could be a repair.

thank you for response - interesting thoughts...so each separate repair if under 2500 can be expenses?.....turns out she has alot of expenses..she basically redid 1/2 of the 2 family house she rents out....spent around 15k.......

she removed paneling, installed sheet rock, put in a drop ceiling, remodeled entire bathroom.....put in recess lighting......

Does the taxpayer have a book expensing policy under which these sub-$2500 improvements were expensed? If so, follow the book policy and make the De Minimis Safe Harbor election on the return. If not, analyze each of the repairs under the ten BAR tests. Then apply the but-for improvement test of 1.263(a)-3(g). One important point to note, if this was before the property was placed in service for the first time by the taxpayer, it all gets capitalized.

Could also look into the Safe Harbor for Small Taxpayers.

Coddington -- in post #1, aren't both improvements done to the building structures subsystem of the building unit of property, and thus would required to be capitalized under a DMSH election as total cost of $4k exceeds $2.5k, or am I thinking about this incorrectly?

In the second post, the OP clarified that the total for all work exceeded the SHST cap. With no plan of rehabilitation doctrine, just a UNICAP-styled improvement test, we would generally analyze each repair/improvement separately. Example 8 under betterments shows how this is done. It breaks out different areas of work and analyzes them separately. Most ended up being betterments, which will probably be the case here. So the DMSH would be the primary exception to capitalization, if it is applicable.