De Minimis Safe Harbor Capitalization Amount Increased

The IRS recently released Notice 2015-82, which increases the de minimis safe harbor capitalization amount for taxpayers who do not maintain applicable financial statements (generally, audited financial statements).

Previously, the minimum capitalization threshold under the final repair regulations was set at $500 (or $5,000 if the business has applicable financial statements). As a result of receiving and reviewing numerous requests from taxpayers and accounting associations to increase this amount, the de minimis amount was raised to $2,500.

If the safe-harbor is adopted, fixed asset purchases (either on a ‘per item’ or ‘per invoice’ basis) costing less than the $2,500 minimum threshold should be recorded as an expense for financial statement and/or tax purposes. A taxpayer may continue to expense all otherwise deductible repair or maintenance costs under the tangible property regulations, regardless of amounts.

The increase is effective for expenditures incurred during tax years beginning on or after January 1, 2016. However, use of the new threshold will not be challenged for tax years beginning after December 31, 2011 and ending before January 1, 2016. So, effectively, taxpayers can adopt and apply it for tax year 2015 fixed asset additions.

The increase may provide a tremendous planning opportunity for you and your business. Please contact your PP&Co advisor at (408) 287-7911 to discuss how best to implement the change.