The IRS Throws Rental Property Owners a Bone

The IRS Has Issued that Guidance

Owners of rental properties have had a hard time translating the guidance sent out by the IRS regarding deductions for property repairs, improvements, and renovations for business properties.

Now, though, the IRS has issued that guidance – and owners of residential rental properties might notice a nice surprise.

As reported by inmannews.com, the IRS approved guidance that contained what is called a “safe harbor for small taxpayers”. Found in IRS Reg. 1.263(a)-3h, a qualifying taxpayer can choose to not apply the new regulations to a building if the amount the owner paid during the year for qualified expenses is smaller than $10,000 or 2% of the building’s cost.

In other words, an investor can instead elect to deduct approved expenses (such as maintenance, repairs, improvements and upgrades) instead of depreciating them over the timeframe created by the new regulations.

All cases are different, and yours may be different, but the safe harbor could be beneficial for your rental properties – especially if this past year saw a good deal of expansion and growth. Furthermore, if you converted houses to rental properties lately, you might be able to benefit.

As mentioned in the article, there are some buildings that do not apply – namely, residential rentals with an original cost or unadjusted basis of over $1 million. Additionally, there is a revenue limit. A qualifying taxpayer has to have average annual gross receipts of less than $10 million over the past three tax years.

We encourage all property owners to consult with their accountants and tax attorneys to determine if the safe harbor is advantageous. It’s not every day that the IRS announces a boon for property owners, so be sure to take advantage if you can.

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