Capital Expense or Maintenance Expense??

Question

Accounting question....would a new appliance for one of my rentals be considered a maintenance expense or cap ex for accounting purposes?

Would that change if it were a flip project?  Thanks.

Ashish Acharya · Answer

If each appliance cost you less than 2500, you can expense it under De minimis safe harbor rule. IF not, it is added to the basis of the house and depreciated.

The safe harbor applies to amounts paid during the tax year to acquire or produce what the regs call a “unit of property” (UOP), you must meet these requirements:

(1) at the beginning of the tax year, the taxpayer has written accounting procedures treating as an expense for non-tax purposes amounts paid for property costing less than a specified dollar amount (which will be 2500 for you), or with an economic useful life of 12 months or less;.

(2) the taxpayer treats the amount paid for the property as an expense on its books and records in accordance with its accounting procedures. ( do this on your bookkeeping software or whatever you utilize)

(3) the amount paid for the UOP doesn't exceed $2,500. as substantiated by invoice

Note: The cost for the Unit of Property includes l additional costs (for example, delivery fees, installation services, or similar costs) if these additional costs are included on the same invoice with the tangible property.

If you are flipping, generally all the cost is added to your cost of your house, More your cost is,  less the gain, less the tax.

Chris Clark · Answer

Depends on the cost of the appliance. If its under $2,500, it would be something you could expense without having to 179 the purchase if you make the proper election.

On a flip it becomes additional basis in the property.

Bob Woelfel · Answer

Thanks @Ashish Acharya.

Thanks @Chris Clark.

What I thought, but needed some additional clarification.  Appreciate it.