Welcome Guest. Register Now!  



Reply
 
LinkBack Thread Tools Search this Thread Display Modes
  #1 (permalink)  
Old 03-10-2015, 08:18 AM
Junior Member
 
Join Date: Mar 2015
Posts: 1
Safe harbor for small taxpayers - eligible basis

I recently began renting the basement of my house and made some improvements (added a kitchen and appliances) in order to do so. I'd like to use the Safe Harbor for Small Taxpayers to deduct these expenses instead of capitalizing them.

First, any general rules for doing so I might not know about?

Second, I've read the max that can be deducted under the safe harbor is $10k or 2 percent of an eligible building, whichever is smaller. How do you calculate the 2 percent here, since the basement is part of the building and some of the improvements were to whole-house systems?

Thank you!



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
  #2 (permalink)  
Old 03-11-2015, 02:22 AM
Moderator
 
Join Date: Oct 2010
Posts: 5,258
First, any general rules for doing so I might not know about?==========>>>>>>>>>>>> to understand the difference between making an improvement and making a repair to your rental property IS VERY CRUCIAL since they have different tax implications, as well as different effects on the value of your property. added a kitchen and appliances will add value to the property for years to come and not just in the current tax year. You can not Deduct the full value of the Improvements on Your Taxes; this is because improvements have a useful life and add value in subsequent years, not just in the year the improvement occurred. Improvements must be capitalized and depreciated according to a set depreciation schedule (it will be different for each asset). You must divide the cost of the improvement over the useful life of the improvement and then take an annual deduction based on the given year's expense.for instance, say you performed $7k of work on your property. It is considered an improvement. Therefore, you must deduct it over a set depreciation schedule. We will use a depreciation schedule of 10 years. We will assume there is no salvage value, meaning it will be worth nothing after the 10 years. We will also assume straight-line depreciation, meaning the cost will be spread out evenly over the 10 years. Thus, you can claim ($7000/10) an expense of $700 each year for the next 10 years. Assuming you are at a 28% tax rate, you will save ($1000*.28) $280 in taxes for the year. You should always consult the IRS or a irsea/ a cpa to decide what deductions are applicable to your specific situation.








Second, I've read the max that can be deducted under the safe harbor is $10k or 2 percent of an eligible building, whichever is smaller. How do you calculate the 2 percent here, since the basement is part of the building and some of the improvements were to whole-house systems?======>>>> Remodeling or finishing a basement to create a basement apartment is likely to be the most significant home improvement you could possibly complete on your house;as the cost is actually an improvement and not a repair, it needs to be added to the basis of the asset and depreciated. The key distinction between a repair and an improvement is that an improvement betters, adapts or restores the asset. If the basement space is 40% of the square footage of the home, then you can deduct 40% of the mortgage interest/property tax/insurance/water tax and util (if you pay for them) of the entire home. And don't forget to check with you city and municipality on conditions and regulations in order to get a certificate of occupancy, that is if basement apt's are even allowed.



Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!Reddit! stumble!bookmark in google!Share on Facebook!
Reply With Quote
Ads
Reply



Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
What is Schedule C-EZ and which Taxpayers are eligible to use this Form? TaxGuru Sole-Proprietorship 0 11-28-2011 11:22 PM
Which taxpayers are eligible to claim the Tuition and Fees Deduction? TaxGuru Miscellaneous 0 02-06-2011 10:44 AM
Which taxpayers are eligible to claim the American Opportunity Credit? TaxGuru Education Planning 0 07-27-2010 12:09 AM
Which taxpayers are eligible for the Retirement Savings Tax Credit? TaxGuru IRA/Sep 0 08-21-2009 02:17 AM
Which taxpayers are eligible to claim the $7,500 tax credit? TaxGuru Homeowner Tax 0 01-29-2009 01:49 AM

Follow us on Facebook Follow us on Twitter Google Buzz Rss Feeds

» Categories
 
Individual
 » Income
 » IRA/Sep
 » Medical
 
Corporations
 » Payroll
 
Forum for CPAs
 
Financial Planning
 
 
 

» Recent Tax Q&A
No Threads to Display.