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)
- Amounts paid for property with an economic useful life of 12 months or less
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 $2,500 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 Business 1065, 1120, or 1120S Program:
- From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
- Click Miscellaneous Topics to expand the category and then click Final Tangible Property Regulations Elections
- Click on any of the Info Icons on the screens for additional information on what should be selected on that particular screen
IRS Internal Revenue Bulletin 2013-43
IRS Revenue Procedure 2015-20