Avoid Depreciation | The De Minimis Safe Harbor Election

October 3, 2016 - 2 minutes read

Close up view of the income tax return

There is Good News on Expensing from the IRS and Congress to Avoid Depreciation

The Internal Revenue Service and Congress have significantly increased the opportunity for taxpayers to currently deduct the costs of property purchased for use in business, rather than having to depreciate those costs over many years.

Three provisions allow taxpayers to accelerate deductions for the costs of capital assets and other property and avoid depreciation. They include bonus depreciation, expanded Sec.179 expensing, and the de minimis exception to the tangible property, or “repair,” regulations.

Rather than address all three options in one very long blog, we will post a blog on each provision, beginning with the de minimis exception today. The other related blogs will be posted soon.


Taxpayers with “applicable financial statements” can expense amounts paid to acquire or produce units of tangible property to the extent those amounts are deducted by the taxpayer for financial reporting purposes or in keeping books and records. The amount deductible is up to $5,000 per invoice or per item substantiated by the invoice.  Audited financial statements prepared by a CPA are the most common type of applicable financial statement.

Those without applicable financial statements can expense amounts paid for units of property up to $2,500 (this amount was increased from $500 effective for tax years beginning on or after Jan. 1, 2016). The safe harbor allows businesses to avoid having to determine whether items purchased for a small cost are deductible or must be capitalized, but it also eliminates the need to depreciate a large number of purchases of small-dollar capital assets.

The de minimis safe harbor does not apply to property that is included in inventory, amounts paid for land and certain other items.

The election, if made, applies to all amounts paid for all property that meets the requirements for the safe harbor.  To elect the safe harbor, the taxpayer should attach a statement to that year’s timely filed federal income tax return.

If you would like to further discuss this topic, please contact Price CPAs, PLLC 615-3855