IRS Raises Tangible Property Expensing Threshold to $2,500

The IRS announced on November 24, that it is increasing the expensing de minimis safe harbor threshold for certain capital items for taxpayers from $500 to $2,500 effective beginning January 1, 2016. This is a part of an effort to simplify the paperwork and recordkeeping requirements for small businesses.

The $2,500 threshold applies to any item that can be substantiated by invoice. As a result, small businesses can immediately receive a deduction for capital assets with costs up to $2,500 that ordinarily would have been spread over a period of years through depreciation deductions. The $2,500 is on a cost per item basis. For instance, two assets purchased at one time and invoiced for $5,000 are eligible to be expensed entirely under the $2,500 de minimis safe harbor.

The IRS requires the company to have a capitalization policy in place for assets to be eligible for the safe harbor.

For taxpayers with applicable financial statements, expensing safe harbor remains at $5,000.

Furthermore, the IRS has stated that it will extend audit protection to eligible businesses by not challenging use of the new $2,500 thresholding in tax years prior to 2016.

If you have any questions regarding de minimis safe harbor for tangible property, please contact Greg Gandy or Mike McDevitt at (719) 579-9090, and we will be happy to serve you.