Safe Harbor Limit for Fixed Asset Purchases Increased

Jan 8, 2016 | By: Jeremiah Leppert

New Safe Harbor Limit:

The IRS Updates Rules on Fixed Asset Purchases

The IRS recently issued Notice 2015-82, announcing that it will raise the amount taxpayers are allowed to expense on purchase of tangible property (de minimis safe harbor), from $500 to $2,500 per item. For taxpayers that have audited financial statements, the safe harbor threshold remains unchanged at $5,000.

Under regulations issued in September 2013, taxpayers are allowed to expense purchases of business property below certain dollar thresholds; the threshold for most was $500. After these regulations were issued, the IRS began receiving complaints on the rules. Accounting industry leaders, such as the AICPA, argued that the $500 limit was simply too low to be of any use; a cell phone or printer could easily cost over $500, and those kinds of items are replaced quickly. It took them a while, but the IRS has finally agreed and raised the threshold to $2,500 in tax years ending December 31, 2016 or later.

There are some requirements to meet to take advantage of the safe harbor election. One is that the business must have their policy regarding it in writing at the beginning of the tax year. For this increased threshold, the policy would need to be in place on January 1, 2016. Second, the election is an annual election and must be made on a timely filed tax return. Third, if this election is made for tax purposes, the affected assets must also be expensed on the business’s books.

If you’d like more information about making this de minimis safe harbor election, please give us a call.

 Call: 503.390.7880

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