Capital Expenditure Safe Harbor Threshold Increased from $500 to $2,500

On November 24, 2015, the IRS increased the de minimis safe harbor threshold from $500 to $2,500 effective January 1, 2016.  The safe harbor rules allow taxpayers to deduct from current year taxable income amounts spent to acquire, produce or improve tangible property.  These amounts would normally qualify as capital expenditures and would be depreciated over multiple years.

  • The change applies to taxpayers without an “applicable financial statement” (i.e. taxpayers without audited financial statements).
  • Taxpayers can use the increased threshold of $2,500 in tax years prior to 2016 and the IRS will provide audit protection under certain conditions.
  • Taxpayers should continue to maintain a written capitalization policy.
  • Taxpayers can still claim otherwise deductible repair and maintenance costs – even if they exceed the $2,500 safe harbor threshold.
  • For taxpayers with an applicable financial statement, the threshold remains set at $5,000.

Our office will be glad to assist you with the implementation and proper documentation of your capitalization policy to ensure you can take advantage of the safe harbor amounts.

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