While expenses and fixed asset purchases might seem similar on the surface, there are some notable differences in how to account for them in REI Hub.
At its most basic, expenses are smaller transactions that can be deducted within one tax year, while fixed asset purchases tend to be larger individual transactions or part of a bigger project.
The biggest consideration here is the IRS de minimis safe harbor rule which designates fixed asset purchases must be $2,500 or larger. If a transaction or project is less than $2,500, you can deduct it as a business expense it within the same tax year. If a transaction is larger than $2,500, the tax benefit is claiming depreciation on it for multiple years.
Expenses
Expenses refer to costs you would deduct in one tax year. These tend to be smaller transactions that help maintain the property and keep it in good condition, like new mulch to update the landscaping.
Some expenses are necessary to operate a rental business. These can include property taxes, property insurance, and REI Hub's most-used expense category of maintenance.
REI Hub matches our default chart of accounts to match the Schedule E expense categories, including advertising, auto and travel, cleaning and maintenance, commissions, depreciation, insurance, legal and professional fees, management fees, mortgage interest, other, other interest (non-mortgage), repairs, supplies, taxes, and utilities.
Fixed Asset Purchases
Fixed assets can be one transaction or a group of transactions that you can deduct over a number of years through depreciation. Fixed assets, also called capital improvements or expenditures, must be over $2,500 in value, and then you can claim depreciation for the asset's useful life.
This can be one large purchase, like a new HVAC system, or smaller purchases totaling in one large project, like a kitchen renovation. Fixed assets are intended to add value to your property by bettering, restoring, or adapting an asset. Additionally, both labor costs and supply costs can be counted to the total of the fixed asset.
When booking transactions in REI Hub, click "book" and select "fixed asset purchase." From there, you'll select the property it belongs to and select the fixed asset to which the transaction belongs.
To learn more about fixed assets in REI Hub, check out this video below!
Examples of Examples vs Fixed Assets
Is a box of screws an expense or a fixed asset purchase?
As part of a renovation, something small, like a box of screws, can be categorized as a fixed asset purchase because it goes toward that larger project.
On its own, a box of screws would be considered an expense.
Do I classify paint as an expense or fixed asset purchase?
If you're painting multiple rooms or an entire house and the cost is over $2,500, then this can be considered a fixed asset purchase.
On its own, a box of screws would be considered an expense.
I remodeled my bathroom for $1,000, can it be considered a fixed asset purchase?
If the total cost of the remodeled bathroom is over $2,500, then it can be booked as a fixed asset purchase as you'll claim depreciation on this asset.
If the total cost is less than $2,500, then the remodel would be considered an expense as it doesn't meet the IRS threshold for capital expenditures, even though it does enhance the property.
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