My head hurts from thinking about tax methods.

[Nick Janovich]

As my first year of real estate investing winds down I'm starting to think of pending tax preparations. I had a lot of questions, found a few answers, and am generally left with more questions. 

I purchased two properties in 2015 through my LLC.

I've identified my currently deductible expenses.

I've calculated depreciation expenses of the buildings.

I've identified obvious repairs for the properties.

Where I'm struggling is with some of the larger expenses. I've read, re-read, printed, highlighted, and re-read Brandon Hall's Safe Harbor blog post hoping to make it simple. While his post was a HUGE help I still have a few questions.

So here is where I stand: 

1) I'm going to apply SHST to property #2. I've spent $800 on repairs to that property. That is under the 2% rule which, in my case, is $1,200 for that property. Done. That was easy!

2) Property #1 is a lower-priced property. I've spent $5,000 on repairs/replacements/improvements. It is not eligible for SHST as 2% of the basis is $700. Most repairs are under $500 and eligible for De Minims Safe Harbor. Two are not. A furnace replacement for $1,800 and a hot water tank replacement for $600. Do both of these get depreciated over 27.5 years? Or can I use a shorter length somehow? It just doesn't seem logical to depreciate a $600 hot water tank over 27.5 years when it will likely last 5 years. I realize I can deduct the remaining amount the year it is replaced but that doesn't help now. Am I thinking about all of this correctly? I've seen others treat a hot water tank as an appliance?

3) Closing fees. I found a great article that goes line-by-line of the HUD1 talking about how to treat each cost. Fees for the loan, appraisal, etc are deducted over the life of the note, in my case that is 15 years. But then I read other places that closing costs are part of acquiring the property, should be added to the basis, and depreciated over 27.5 years.

Anyone want to help?

[Rob Beland]

spend $1000 +/- on a CPA and he will figure it all out @Nick Janovich