jklcpa Posted February 11, 2015 Report Share Posted February 11, 2015 Depending on the type of business the taxpayer is in and what the repair is for, in addition to the de minimis safe harbors for tangible property purchased and the materials and supplies, there is also a safe harbor for small taxpayers with buildings (Reg sec 1.263(a )-3(h)(8) that says the total of repairs and improvements for building repairs totaling 2% or less than the unadjusted basis of the building, capped at $10,000, meets the safe harbor. The safe harbor also extends to lessees where a taxpayer leases a building or leases space within a building, ref is reg sec 1.263(a )-3(h)(2). The "unadjusted basis" of a leased building or space is equal to the amount of undiscounted rent paid or expected to be paid over the entire lease term, including renewal periods. Small taxpayer definition - having average annual gross receipts of $10 million or less in 3 preceding tax years. I have my retailer that I'm still working on today that leases two retail stores. He falls into that safe harbor also, so in general terms for example, if he pays ~ $50K per year for one store and has a 5-year lease, that's 250K * 2%, so he has a safe harbor of $5K. If the lease had a 5-yr option, the safe harbor would include that option period too. If he spends $800 to fix a damaged door or a plumbing issue that don't fall into the categories of betterments, restorations, or adaptations, then can he safely continue to expense those? Am I on the right course?! Also, from what I've read, this is an election that must be made for each building that the taxpayer must make each year with the timely filed original tax return. Timely filed includes through the extended due date. I can't find a sample election and isn't included in my software. Does anyone have something they could share? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 11, 2015 Author Report Share Posted February 11, 2015 Doesn't this mean that for all of our clients that fall into the definition of "small taxpayers" that also rent space, that they should be making this annual election in addition to the other de minimis one? Quote Link to comment Share on other sites More sharing options...
cred65 Posted February 11, 2015 Report Share Posted February 11, 2015 In ATX, Elections, Deprec. and Amort at the bottom of the page there are check off options related to De Minimis Safe Harbor. Is this of any help? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 11, 2015 Author Report Share Posted February 11, 2015 Not really. I don't use ATX, but my software does have the de minimis election. I believe that election only covers the $500 and $200 limits in Reg 1.263(a )-1(f) and 1(h)(2)(ii). According to the CCH special report I saved earlier this year, this says that a statement must be attached to a timely filed return (including extensions) each year, and references 1.263(a )-3(h) and 1.263(a )-3(r )(2)(ii). It doesn't appear that the de minimis election covers this. Am I totally wrong about this? Quote Link to comment Share on other sites More sharing options...
Lynn EA USTCP in Louisiana Posted February 11, 2015 Report Share Posted February 11, 2015 One caveat to the real estate safe harbor - the unadjusted cost of the building must be less than $1,000,000 in addition to the other requirements. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 12, 2015 Author Report Share Posted February 12, 2015 One caveat to the real estate safe harbor - the unadjusted cost of the building must be less than $1,000,000 in addition to the other requirements. Thanks for that reminder, Lynn. I did realize that too, and my client and the rent example would fall still be well within those limits. I'm going to draft up something to attach that will cover this election. I don't see anything in repairs to capitalize, mostly small $3-400 items, but it totals close to $2,700 for the year for the one store, and this election would cover them nicely. Quote Link to comment Share on other sites More sharing options...
rfassett Posted February 12, 2015 Report Share Posted February 12, 2015 Judy, there is a separate election in the ATX (and I know you do not use ATX, but I am just saying) that says that an election is being made under the safe harbor rules for relative to the real estate listed below (or something like that). So yes, there is a separate election - at least in ATX. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 12, 2015 Author Report Share Posted February 12, 2015 Judy, there is a separate election in the ATX (and I know you do not use ATX, but I am just saying) that says that an election is being made under the safe harbor rules for relative to the real estate listed below (or something like that). So yes, there is a separate election - at least in ATX. Ron, thank you, thank you! That gave me the clue to find it in my software where it was listed immediately below the other one (you know, right where it should be ) and the last words of the title were cut off so that I didn't instantly recognize it. I'm so tired already, what will I feel like a month from now?! 2 Quote Link to comment Share on other sites More sharing options...
Randall Posted February 12, 2015 Report Share Posted February 12, 2015 I think there is also language in the new rules that larger amounts of repairs may still be considered repairs. Just because it's a higher dollar amount doesn't preclude it from being a repair. I don't have the reference handy but something about if the repair is expected to be incurred again within the life of the asset. And if the 2nd repair event does not actually occur, that doesn't mean the original repair was not a repair. 2 Quote Link to comment Share on other sites More sharing options...
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