Can I choose not to count an expense if it would put me over the 2% safe harbor amount?
Example:
I have a building with a basis of $200,000.
The 2% safe harbor amount is $4,000.
I have $4,050 of repairs, maintenance, cleaning, and supplies expense, $1000 of which would normally be capitalized.
If I don't count a $100 plumbing repair, it brings the total to $3,950, which is now under the 2% cap, and I can deduct the entire amount.
Am I breaking any rules here?
I'm afraid you probably are breaking the rules. However, there is also a record-keeping requirement for deductions. If you "lost" the records for the plumbing repair, you wouldn't be breaking any rules in not claiming it.
If I'm wrong, I would like to know, so I can better help my clients.
Why in the world would you not want to claim all legitimate expenses? "Safe harbor" does not mean "maximum allowable"
The safe harbor for small taxpayers does have a maximum amount for total expenses. If you exceed the maximum you cannot use the safe harbor at all. The safe harbor can only be used "if the total amount paid during the taxable year for repairs, maintenance, improvements, and similar activities performed on the eligible building does not exceed the lesser of $10,000 or 2 percent of the unadjusted basis of the building."
As stated in the OP's original question, the basis of his building is $200,000, so 2% is $4,000. Therefore, if his total expenses for maintenance, repairs, and improvements are more than $4,000 he cannot use the safe harbor. He is asking whether he can omit an expense in order to stay under that maximum and be able to use the safe harbor. He'd rather forgo deducting a small expense than lose the ability to use the safe harbor.
Bob Sandler
I can either give up a $50 deduction and be able to deduct a $1000 betterment in its entirety this year,
or
take a $50 deduction and depreciate $1000 over 27.5 years.
I would much rather have $950 of deductions this year, that $1000 of deductions over 27.5 years.
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