On November 24, the IRS issued Notice 2015-82 which increased the de minimis safe harbor for tangible property costs from $500 per item to $2,500 per item. This change generally goes into effect for tax years beginning on or after 2016 but could be retroactive in certain cases.
The final tangible property cost regulations that were issued in 2013 allowed taxpayers to make an annual election to expense certain de minimis costs of acquiring, producing or improving tangible property. For taxpayers with an audited financial statement, the limit was $5,000 per item. For other taxpayers, the limit was $500 per item.
Notice 2015-82 increases the per item limitation for taxpayers without an audited financial statement from $500 to $2,500. The change generally applies to taxable years beginning on or after January 1, 2016. Taxpayers who wish to take advantage of this change will need to adopt (or change) their accounting procedures to treat amounts paid for property costing $2,500 or less as an expense for purposes of non-tax books and records. The accounting procedure does not have to be in writing but it does need to be in effect at the beginning of the 2016 taxable year. Note that companies with audited financial statements can still deduct costs of up to $5,000 per item.
For prior taxable years, the IRS will not raise upon examination a taxpayer position that the de minimis safe harbor election applied to per item amounts of $2,500 or less. As a result, the change appears to apply to the 2015 taxable year if the taxpayer satisfies the requirements of Treasury Regulation 1.263(a)-1(f)(1)(ii) and has therefore adopted an accounting procedure (as of the beginning of the 2015 taxable year) that required items of $2,500 or less to be expensed.
Questions? Contact your Berdon advisor. Berdon LLP New York Accountants