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2014 Tangible Property Regulations - De Minimis Safe Harbor

De Minimis Safe Harbor

A beneficial de minimis safe harbor election allows taxpayers to elect to currently deduct their outlays for “lower-cost” business assets that they expense for book purposes under a written policy. To be eligible for this “book tax conformity election,” a unit of property (UOP) can’t cost more than $5,000 if a business has an Applicable Financial Statement (AFS), which is an audited financial statement. All other taxpayers without an AFS, the de minimis threshold  for UOP can’t cost more than $500. As an alternative to the general capitalization rule, the final regs permit businesses to elect to expense their outlays for “lower-cost” business assets. If the taxpayer is eligible for the de minimis safe harbor election, and chooses it, an amount paid to acquire or produce any eligible UOP (or any beneficial eligible material or supply) is deducted in the year paid under Code § 162 (assuming the item otherwise de minimis safe qualifies as an ordinary business expense), and may not be capitalized or treated as a material or supply safe harbor election.

The de minimis safe harbor applies to an amount paid during the tax year to acquire or produce a UOP, to elect to or acquire a material or supply, if:

The taxpayer has at the beginning of the tax year a written accounting procedure treating the outlays for expense for non-tax purposes amounts paid for property

(A) costing less than a specified dollar amount; or business assets that they expense

(B) with an economic useful life of 12 months or less

If the cost of the invoice item exceeds the applicable threshold, no amount may be deducted under the de minimis safe harbor. A taxpayer must include all additional costs related to the UOP in its cost if included on the same invoice. These costs may be treated separately if on a separate invoice. As previously noted, if the taxpayer does not have a written accounting policy in place as of the beginning of the tax year it may not elect to use the de minimis procedures.