New IRS Rules for Capitalization & Depreciation

[Burke]

Business without an AFS:

Safe harbor election is $500 per item. Is there somewhere special this goes on the return, or can you just include it in "Supplies." Does it have to go on the depreciation schedule?

[Burke]

Hello, out there......

[taxea]

Burke dont the new rules address something about the value being over 100. to be depreciated or amortized? I didn't read the safe harbor...does it say by using it you can expense the item rather than depreciating/amortizing it?

[Burke]

Yes, that what the new rule does. Temp regs said $100, $200, $500 & $5K. Final regs say $500 and $5K. New reg appears to be eff. 1/1/2014. I'll just 179 it this year. Maybe next year there will be an election or other form.

[taxea]

Burke...question for you
I shy away from 179 unless it will zero out tax liability because I don't see that it benefits the client. When you 179 do you take only the portion of the asset necessary to zero out the tax due and depreciate the balance of the asset?

[TaxGuyBill]

IF the taxpayer qualifies, just put it under "Supplies" or something. It does NOT go on the depreciation schedule.


HOWEVER the taxpayer may not qualify. The Regulations say "The taxpayer has at the beginning of the taxable year accounting procedures treating as an expense for non-tax purposes".

http://www.aicpa.org/InterestAreas/Tax/Resources/TaxMethodsPeriods/Pages/TangiblePropertyRegsQuestionandAnswer.aspx#Q11

http://www.ecfr.gov/cgi-bin/text-idx?SID=6a9d4e89729176cc1e82635fe7d6d432&node=26:3.0.1.1.1.0.5.141&rgn=div8

http://www.irs.gov/irb/2013-43_IRB/ar05.html#d0e419

http://tax.cchgroup.com/downloads/files/pdfs/legislation/repair-capitalization-regulations.pdf

If they did not have have the accounting procedure in place "at the beginning of the taxable year", they don't qualify. Interestingly, I just noticed that the $5000 limit for those with an applicable financial statement uses the word "written" accounting procedure. The $500 limit for those without an applicable financial statement does not have the word "written".

http://www.aicpa.org/InterestAreas/Tax/Resources/TaxMethodsPeriods/DownloadableDocuments/AICPA%20Sample%20De%20Minimis%20Safe%20Harbor%20Written%20Capitalization%20Policy.doc

The Regulations now show that $200 and under are "de minimus" and can be deducted (as supplies or repairs). You can make the election to expense $500 and under, but be SURE you include the specific election that you are saying you are doing that. I don't know about other software, but ProSeries has NOT included this yet, so we need to manually do it.

The Regulations start in 2014, but are optionally retroactive to 2012 and 2013.

[Burke]

IF the taxpayer qualifies, just put it under "Supplies" or something. It does NOT go on the depreciation schedule.

If they did not have have the accounting procedure in place "at the beginning of the taxable year", they don't qualify. Interestingly, I just noticed that the $5000 limit for those with an applicable financial statement uses the word "written" accounting procedure. The $500 limit for those without an applicable financial statement does not have the word "written".

The Regulations now show that $200 and under are "de minimus" and can be deducted (as supplies or repairs). You can make the election to expense $500 and under, but be SURE you include the specific election that you are saying you are doing that. I don't know about other software, but ProSeries has NOT included this yet, so we need to manually do it.

The Regulations start in 2014, but are optionally retroactive to 2012 and 2013.

The $500 limit is for business without an AFS in place. It does not have to be written. The item in question is $300. So an election is necessary? ATX doesn't have one either.

[Burke]

Burke...question for you
When you 179 do you take only the portion of the asset necessary to zero out the tax due and depreciate the balance of the asset?

I believe you have no choice, and must do it that way, unless you elect to carryover the unused 179 to next year. (Unless you have other earned income that would allow the full deduction.) It doesn't necessarily zero out the tax, unless you are talking about social security tax. It is applied against business income.

[TaxGuyBill]

The $500 limit is for business without an AFS in place. It does not have to be written. The item in question is $300. So an election is necessary? ATX doesn't have one either.

It does not need to be written, but it DOES need to EXIST at the beginning of the year.

Yes, it requires including a specific statement to make the election, and it's an annual election, and all items under the set amount (usually $500) must be deducted, and not depreciated.


I can't find any required specific wording, but this is what the Regulations say about it:

The statement must be titled “Section 1.263(a)-1(f) de minimis safe harbor election” and include the taxpayer's name, address, taxpayer identification number, and a statement that the taxpayer is making the de minimis safe harbor election under §1.263(a)-1(f).

http://www.ecfr.gov/cgi-bin/text-idx?SID=6a9d4e89729176cc1e82635fe7d6d432&node=26:3.0.1.1.1.0.5.141&rgn=div8