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We bought a vacation house, in the USA, in 2022, and are renting it some. I'm trying to figure out what expenses (including repairs, improvements, and maintenance) can be "expensed" (that is, deducted against rental income) and which must be depreciated (over 27.5 years), on my federal income tax return.

It looks to be like the "de minimis safe harbor" election allows me to expense any of these costs, as long as they each are less than $2500, or are an item on an itemized invoice costing less than $2500 (even if the invoice total exceeds $2500).

So a $2000 outlay for a radon mitigation system, as well as a $1000 outlay for a bear-proof trash receptacle, even though both are clearly improvements with life-spans in excess of one year, can be expensed using de minimis.

Similarly, a DIY install of a ductless minisplit heat pump can be expensed, even though the total cost of materials exceeded $2500, because the minisplit itself is billed at $2200 on an invoice. So it, and the $500 or so of installation components (shown on the minisplit invoice and several others) can all be expensed.

Only a roof replacement (upgrading shingles to metal) at $6000, and an off-road parking space, at $3000, must be depreciated.

Do I have this right ?

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  • I don't think this is relevant, but part of the purchase price was from a 1031 like-kind exchange of an un-developed lot, so renting the property is required to substantiate its being an investment property. Nov 29, 2022 at 20:48
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    I'm assuming this is about US tax laws?
    – littleadv
    Nov 29, 2022 at 21:51
  • Yes it is about US income tax law. Nov 29, 2022 at 22:31
  • Boy, airbnb and vrbo makes that easier doesn't it? :) Nov 29, 2022 at 22:40
  • Well, you still have to do your own taxes (or farm it out), right ? Nov 29, 2022 at 22:50

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You generally have it right. The election must be explicit on the return.

Keep in mind that in case of mixed personal and business use, you may not be able to actually deduct all of the expenses (in some cases you may be able to defer the deduction, in others not - depending on your usage pattern).

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  • And yes, all those expenses are pro-rated according to the number of days of use that are rentals versus personal. Nov 29, 2022 at 22:31
  • Yes, there's a little form that Turbotax includes on the return, cleverly titled "1.263(a)-1(f)" that makes the election explicit. Nov 29, 2022 at 22:36
  • What's this about a "usage pattern" ? Nov 30, 2022 at 0:06
  • @RustyShackleford you already mentioned the split between rental days and personal use days, another factor may be how many rental or personal use days there are (below 14/year either way is disregarded altogether), and how you decide your rent (e.g.: arms length vs. related party).
    – littleadv
    Nov 30, 2022 at 0:07
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    @RustyShackleford you need a professional to advise you since you're on a shaky ground. You might actually learn that going out of your way is more important than actually renting it out.
    – littleadv
    Nov 30, 2022 at 5:10

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