New Law Change Allows Immediate Deduction of More Fixed Asset Costs

(De Minimis Safe Harbor Limit is Increased to $2,500)
By Andy Smith, Tax Principal
December 1, 2015

Just in time for Thanksgiving, the IRS made some changes for which many taxpayers will be thankful.

Last week, the IRS issued Notice 2015-82, which increased the de minimis safe harbor limitation for taxpayers without an applicable financial statement from $500 to $2,500. It represents a very meaningful enhancement to the Tangible Property Regulations that were rolled out last year, which significantly overhauled the criteria governing whether an outlay should be capitalized and depreciated over time, or instead immediately deducted.

Some context may be helpful. The Tangible Property Regulations provided two de minimis caps on the per-item amount of outlays that may be immediately deducted, even though the costs otherwise meet the criteria requiring capitalization and depreciation. For taxpayers with “applicable financial statements” (generally those audited by a CPA), that cap was set at $5,000 last year, and it remains unchanged. For all other taxpayers, the cap was set last year at $500. That $500 cap that has been increased by Notice 2015-82 to $2,500.

For both caps, the taxpayers cannot deduct such costs for tax purposes unless they also do so for book purposes.

The notice is effective for tax years beginning on or after January 1, 2016, but the IRS indicated that generally they will not challenge the use of this threshold for tax years that begin after December 31, 2011.

This limit increase was the result of taxpayer and professional comments suggesting that the original $500 limit was too low to reduce taxpayer’s administrative burdens, and that it was below the threshold many small businesses already used as part of their capitalization policies.

For a detailed review of the de minimis safe harbor, please see our complete analysis of the Tangible Property Regulations on our website.

This was not the only change to the Tangible Property Regulations that the IRS cooked up during the holidays.  They also issued Revenue Procedure 2015-56 recently, providing a safe harbor relating to the deduction of certain remodeling costs incurred by retailers and restaurants. Those changes will be addressed soon in our December 2015 issue of the BNN Briefing.

If you would like to discuss further, please call your BNN tax advisor or Andy Smith.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.