Recently, the IRS and Treasury Department issued final regulations regarding the treatment of costs to acquire, produce or improve tangible property (the “Repair Regs”). The final regulations include a “De Minimis Safe Harbor” provision, which allows a taxpayer to expense the acquisition cost of property under the specified threshold if certain requirements are met.
The requirements differ depending on if the taxpayer has an applicable financial statement (AFS) or not. An AFS is an SEC filing, an audited financial statement, or a financial statement required to be provided to a federal or state agency (excluding the IRS and SEC). Taxpayers with an AFS may elect to deduct fixed assets purchased during the year with a cost of $5,000 or less (per invoice or per item if substantiated by an invoice). Taxpayers without an AFS may elect to deduct fixed assets purchased during the year with a cost of $500 or less (per invoice or per item if substantiated by invoice). In order to qualify under the De Minimis Safe Harbor, the taxpayer must have a capitalization policy with specified dollar thresholds in effect by the beginning of the year and must follow that policy in the books and records. It is recommended that you implement a policy by January 1, 2014.
If you have any questions, please contact your tax advisor at Matthews, Carter and Boyce, P.C.