EFPR Group Companies

For over 60 years, our knowledgeable and experienced team of CPAs and business consultants have been serving individuals and businesses in Western New York and around the nation.

Final Tangible Asset and Repair Regulations: A Brief Overview of the De Minimis Rule

You may have heard some rumbling over the new repairs and maintenance regulations that were issued in mid-September.  Basically, any taxpayer that acquires, produces or improves tangible property will be subject to the new rules.  These rules are quite extensive, rather complicated and encompass everything from purchases of supplies to dispositions of building components.  This summary will focus on just the new de minimis rule of the ability to expense, rather than capitalize, tangible personal property. When the Temporary repair regulations came out at the end of 2011, one of the big concerns was how to calculate and apply the de minimis rule. First, there was the written policy, then the definition of an applicable financial statement (AFS), followed by the convoluted calculation which appeared to be impractical to calculate until the year end – after expenses were already taken, and finally the concern that most small businesses do not have AFS and would be left out of the ability to apply the de minimis rule. Thankfully, the concerns were heard and the de minimis rule has been updated in the final regulations to a more taxpayer-friendly version. Under the new de minimis rule, the taxpayer is allowed to deduct amounts paid for property additions of up to $5,000. The $5,000 threshold is determined at the invoice or item level and must agree to the taxpayer’s capitalization policy utilized for book purposes. The requirement for an applicable financial statement still applies as does the requirement to having written accounting procedures in place at the beginning of the taxable year.  These are the keys… a written policy, AFS (which are basically audited financial statements; reviewed and compiled financial statements do not meet this definition) and expensing on the books.  Small businesses that may not have AFS were not left out of the safe harbor in the final regulations, but are limited to expensing of items up to $500 per item or invoice (versus the $5,000 threshold). With regard to the expensing determination at the invoice or item level, one caution is that if the cost of an invoice or item exceeds the applicable threshold, no amount may be deducted under the de minimis safe harbor. Taxpayers need to be aware that costs of acquiring the property that are included on the same invoice are included in the determination when applying the safe harbor. For example, if an invoice is for a piece of property with a cost of $4,800 and the invoice also includes delivery fees, installation fees etc. of $350, the total invoice of $5,150 is now over the threshold and the property may not be expensed under the de minimis rule. An option in this situation is for delivery/installation fees and the like to be billed on a separate invoice. The final regulations allow a taxpayer electing the safe harbor to not include additional costs of acquiring the property if such costs are not included on the same invoice as the property. This does not, however, allow a taxpayer to purchase a $100,000 piece of equipment and have it invoiced over 20 plus invoices. It’s a nice thought but the IRS is not going to allow it. The new regulations are effective starting January 1, 2014.  However, you may elect to apply them early, starting with the 2012 calendar tax year.  New rules, written policies, annual elections, tax savings opportunities and possible amended tax returns….all reasons to give us a call to learn more about these complicated regulations and how they may affect your business!  Please give us a call at 585-427-8900.

For more information call