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Effective for taxable years beginning on or after January 1, 2014, taxpayers can elect annually a de minimis safe harbor to not capitalize any amount paid in the taxable year for the acquisition or production of a unit of tangible property nor treat as a material or supply any amount paid in the taxable year if the amount specified meets the requirements of this regulation.

Qualifications of the de minimis safe harbor election:
The taxpayer must have at the beginning of the taxable year written accounting procedures to treat as an expense for non-tax purposes:
  • Amounts paid for property costing less than a specified amount (see Limits)

         OR

  • Amounts paid for property with an economic useful life of 12 months or less

Limits:
A taxpayer without an Applicable Financial Statement (e.g. certified audited financial statement) can elect to expense the property if the amount paid does not exceed $500 per invoice (or per item as substantiated by the invoice).

A taxpayer with an Applicable Financial Statement (e.g. certified audited financial statement) can elect to expense the property if the amount paid does not exceed $5,000 per invoice (or per item as substantiated by the invoice).


Making the Election

A taxpayer makes the annual election by attaching a statement to the taxpayer's timely filed original Federal tax return (including extensions) for the taxable year in which these amounts are paid. The statement must be titled "Section 1.263(a)-1(f) de minimis safe harbor election" and include the taxpayer's name, address, taxpayer identification number, and a statement that the taxpayer is making the de minimis safe harbor election under Section 1.263(a)-1(f). A taxpayer may not revoke an election made under this rule.

Small Taxpayer Safe Harbor

Pursuant to Reg. section 1.263(a)-3(h), a qualifying small taxpayer may elect to not apply improvement rules to an eligible building if the total amount paid during the taxable year for repairs, maintenance, improvements, and similar activities performed on the building does not exceed the lesser of: $10,000 or 2% of the unadjusted basis of the building.  A qualifying small taxpayer includes a taxpayer whose average annual gross receipts for the three preceding taxable years are $10 million or less.  An eligible building includes a building that is owned or leased by the qualifying small taxpayer if the unadjusted basis of the building property is $1 million or less.  If the small taxpayer safe harbor is applicable and elected, a qualifying taxpayer is not required to apply the improvement standards to owned or leased eligible buildings.   

Making the Election

A qualifying taxpayer elects the small taxpayer safe harbor annually by including a statement in its timely filed, original tax return for the year of the election.  The statement must be titled "Section 1.263(a)-3(h) Safe Harbor Election for Small Taxpayers" and include the taxpayer's name, address, taxpayer identification number, description of each eligible building property to which the taxpayer is applying the election, the amounts paid for repairs, maintenance, improvements and similar activities performed on the eligible building(s) described above qualify under the safe harbor provided in Reg. section 1.263(a)-3(h)(1).

In the case of an S corporation or a partnership, the entity makes the election (not the shareholders or partners).  Once made, the election is generally irrevocable and may not be changed through the filing of an application for change in accounting method. 

To enter the election in the TaxAct 1040 and 1041 program:

Schedule C:

  1. From within your TaxAct return (Online or Desktop), click on the Federal tab. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Business Income to expand the category, and then click Business income or loss from a sole proprietorship
  3. Click Add to create a new copy of the schedule or Review to review a schedule already created
  4. Continue through the interview screens until you reach the screen titled Business Income - Expenses, then click Yes
  5. The next screen titled Business Income - Repair Regulation Elections will allow you to make the specific election and this statement will be electronically filed with the return and will also print with the return when it is printed. 


Schedule E:

  1. From within your TaxAct return (Online or Desktop), click on the Federal tab. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Rent or Royalty Income to expand the category, and then click Real estate rental income
  3. click Add to create a new copy of the schedule or Review to review a schedule already created.
  4. Continue through the interview screens until you reach the screen titled Rental Income - Expenses, then click Yes
  5. The next screen titled Rental Income - Repair Regulation Elections will allow you to make the specific election and this statement will be electronically filed with the return and will also print with the return when it is printed. 


Schedule F
:

  1. From within your TaxAct return (Online or Desktop), click on the Federal tab. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Business Income to expand the category, and then click Farming income or loss
  3. Click Add to create a new copy of the schedule or Review to review a schedule already created
  4. Continue through the interview screens until you reach the screen titled Farm Income - Expenses, then click Yes
  5. The next screen titled Farm Income - Repair Regulation Elections will allow you to make the specific election and this statement will be electronically filed with the return and will also print with the return when it is printed. 


Form 4835 only TaxAct 1040 Program
:

  1. From within your TaxAct return (Online or Desktop), click on the Federal tab. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Rent or Royalty Income to expand the category, and then click Farm rental for crop shares
  3. Click Add to create a new copy of the Form or Review to review a Form already created
  4. Continue through the interview screens until you reach the screen titled Farm Income - Expenses, then click Yes
  5. The next screen titled Farm Rental - Repair Regulation Elections will allow you to make the specific election and this statement will be electronically filed with the return and will also print with the return when it is printed. 

 

Additional Information:

IRS Internal Revenue Bulletin 2013-43

IRS Revenue Procedure 2015-20


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