What is the difference between electing safe harbor under IRS Reg. §1.263(a)-3h, and electing safe harbor for residential rental property and QBI 250 your rental rule.

[JeffCPA]

I have a client who owns two rental properties.  He replaced carpeting throughout the house.  This is an improvement that normally cannot be expensed, and must be depreciated over 27.5 years.   however, it is my understanding that if he makes a safe harbor election under 1.263 (a) (3h), then he, he would be able expense the cost of carpeting.   I have made that election on proseries professional, (and this property is not his business; he has "active" participation, but not material participation).   So, when I make that election on software, I was expecting the expensing of carpeting cost to be allowed, but it is not. 

When I then next indicate that this is a qualified trade or business, the expensing of carpeting is still not allowed.   I thought the safe harbor under 1.263(a) (3H) has nothing to do with QBI, and instead is based on value of rental property being less than 1 million.   What is going on here, and what am i doing or understanding incorrectly. 

[Terry53029 · Accepted solution]

You don't put it in as an asset, you just list the expense on schedule E worksheet, call up the safe harbor election form and fill it out

[JeffCPA]

Ok.   That is terrific.  That is what I will do.   So, the QBI rules and whatever safe harbor means for QBI purposes has nothing to do with the safe harbor for purposes of being allowed to expense a capital improvement on what would otherwise have to be depreciated an a capital imrpovement to rental real estate?

[rbynaker]

Isn't carpeting 5-year property?

[TaxGuyBill]

In most residential cases, yes, and qualifies for 100% Bonus.