A de minimis safe harbor election for tangible property involves a taxpayer's option to elect to expense certain items rather than capitalize them. This allows the taxpayer to deduct in the current tax year the entire amount of the expenditure rather than depreciate the item over some period of time.
The dollar threshold under which an amount may be deducted rather than capitalized will vary depending on whether the business has an applicable financial statement, or AFS. An AFS includes any of the following:
- A financial statement required to be filed with the SEC;
- A certified audited financial statement accompanied by a CPA report;
- A financial statement, other than a tax return, required to be provided to a federal or state government or agency other than the IRS or the SEC.
Dollar limitations
Under § 1.263(a)-1(f)(1) as modified by Rev. Proc. 2015-82, a taxpayer without an AFS may elect to apply the de minimis safe harbor if, in addition to other requirements, the amount paid for the property subject to the de minimis safe harbor does not exceed $2,500 per invoice (or per item as substantiated by the invoice).
A taxpayer with an AFS may elect to apply the de minimis safe harbor if, in addition to other requirements, the amount paid for the property does not exceed $5,000 and the taxpayer treats the amount paid as an expense on its AFS in accordance with its written accounting procedures.
Property excepted from the election
The de minimis safe harbor does not apply to the following expenditures:
- Amounts paid for property that is or is intended to be included in inventory;
- Amounts paid for land;
- Amounts paid for rotable, temporary, and standby emergency spare parts that the taxpayer elects to capitalize and depreciate under § 1.162-3(d);
- Amounts paid for rotable and temporary spare parts that the taxpayer accounts for under the optional method of accounting for rotable parts pursuant to § 1.162-3(e).
Claiming the election
In order to claim this election, the preparer must attach a statement titled "Section 1.263(a)-1(f) de minimis safe harbor election" to the tax return for each taxable year. This statement should include the taxpayer's name, address, and SSN (both names and SSNs in the case of a joint return), as well as a sentence stating that they are making the de minimis safe harbor election under section 1.263(a)-1(f) for the current tax year. Once made, the election may not be revoked.
Generating the election statement
To generate the de minimis safe harbor election in TaxSlayer ProWeb, from the Federal Section of the tax return select:
- Miscellaneous Forms
- Explanations
- Elections Explanations - In the dropdown menu select De minimis safe harbor election.
- Generate the De minimis safe harbor election? - Select Yes. The statement will generate in its own window where you can edit it if desired.
When you print the return, the election will be included on its own page headed "Election Explanations".
Note: This is a guide on making the de minimis safe harbor election for tangible property in TaxSlayer ProWeb. This is not intended as tax advice.
Additional Information:
IRS: Tangible Property Regulations - Frequently Asked Questions