Repair Regulations Update: IRS Raises De Minimis Expense Safe Harbor Threshold to $2,500

On Tuesday, November 24, 2015, the IRS announced that the de minimis expense safe harbor threshold is being changed from $500 to $2,500 for taxpayers without an applicable financial statement. The changed was announced in Notice 2015-82, located here. 

In September 2013, the final repair regulations were issued. Treasury Regulation § 1.263(a)-1(f) provides a de minimis safe harbor election that permits a taxpayer to expense  amounts paid for tangible property that it acquires or produces during the taxable year, provided the taxpayer meets certain requirements and the property does not exceed certain dollar limitations. The dollar limitation was originally $500 for taxpayers without an applicable financial statement, and the Treasury Department and IRS had requested comments on whether an increase was warranted. Based on feedback received from more than 150 comment letters, the determination has been made that an increase to $2,500 is appropriate.

The new $2,500 threshold is effective for costs incurred during taxable years beginning on or after January 1, 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016 if the taxpayers otherwise satisfy the requirements of the regulations.

It is important to note that the de minimis expense safe harbor is an annual election that must be filed with each tax return that a taxpayer wants it to apply to. Also, for taxpayers with an applicable financial statement, the de minimis expense threshold remains at $5,000. The tangible property regulations are complex and a tax professional should be contacted for more information.