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February 4, 2016 | Volume 14, Issue 1 | 800.756.2772

De Minimis Expensing Safe Harbor Under Capitalization Regulations is Increased

As an alternative to the general capitalization rule, regulations permit taxpayers to elect to expense amounts paid for tangible property that are expensed for financial accounting purposes.  

The safe harbor amount depends on whether the taxpayer has an applicable financial statement (AFS). An AFS can be a certified audited financial statement that is used for credit purposes, for reporting to partners or for other non-tax purposes. A taxpayer with an AFS may rely on the de minimis safe harbor if no more than $5,000 per invoice or per item as substantiated by the invoice.  For taxpayers without an AFS, the maximum figure was $500.  In new guidance, the IRS has increased from $500 to $2,500, the de minimis safe harbor limit for taxpayers that don't have an AFS. The increase applies for costs incurred during tax years beginning on or after January 1, 2016, but use of the new limit won't be challenged by the IRS in tax years prior to 2016.

If you have any questions regarding the application of the de minimis rules or the repair regulations, please contact your RINA representative.