Regulation · 2013
Treas. Reg. 1.263(a)-1(f) — De Minimis Safe Harbor
Treas. Reg. 1.263(a)-1(f)
Treasury Regulation (T.D. 9636)
Audio summary
A short audio walkthrough of this rule: what it says and why it matters for your study.
What it holds
Taxpayers may elect to expense acquired or produced tangible property below a per-invoice/per-item dollar threshold rather than capitalizing and depreciating it. The threshold is $5,000 per item for taxpayers with an applicable financial statement (audited financials or financials filed with a government agency) and $2,500 per item for all others (raised from $500 by Notice 2015-82, effective January 1, 2016). A written expensing policy in effect at the start of the tax year is required.
Why it matters for your study: A cost segregation study identifies personal-property components by individual cost. Items below the de minimis threshold can be expensed immediately under this safe harbor instead of tracked on a depreciation schedule. That turns a small-dollar component into a current deduction rather than a multi-year depreciation stream.
Where this comes from
The 2013 tangible property regulations created three safe harbors to reduce bookkeeping complexity for property owners. The de minimis safe harbor is the most broadly used of the three. It formalizes a long-standing practical position: small-dollar items are not worth tracking as depreciable assets, and expensing them immediately does not materially distort income.
What it established
The safe harbor sets a dollar ceiling below which tangible property can be expensed in the year of acquisition rather than capitalized and depreciated.
If you have an applicable financial statement (audited financials or financials filed with a government agency), the ceiling is $5,000 per invoice or per item. Without an AFS, the ceiling is $2,500 per item. IRS Notice 2015-82, effective January 1, 2016, raised the non-AFS threshold from $500 to $2,500.
To elect the safe harbor, you need a written accounting policy that says you expense amounts below the threshold, in place at the start of the tax year. The policy must be applied consistently.
How it shows up in a study
A cost segregation study breaks the building into individual components and assigns a cost to each. Some components, particularly small fixtures, hardware items, individual outlet covers, lighting units, or equipment connections, will have per-unit costs that fall below the de minimis threshold.
For those items, you do not need a depreciation schedule at all. With the written policy in place, you expense them in the year the property is placed in service. The study identifies what they are and what they cost. The safe harbor does the rest.
For components above the threshold, the study assigns the correct depreciation class. The study and the safe harbor work together: small items get expensed now, larger items get depreciated at the fastest legally available rate.
What it does not mean
The de minimis safe harbor is an annual election. If the written policy is not in place at the start of the year, you cannot elect it for that year retroactively. This is a proactive planning step, not a cleanup tool.
The safe harbor also does not convert capital improvements into deductible repairs. It only applies to the acquisition or production of new property that falls below the threshold. Amounts that must be capitalized as betterments, restorations, or adaptations under the other repair regulations are outside its scope.
Primary source
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- Category
- Tangible property regs
- Applies to
- All property types
- Status
- Vetted
This page explains a tax authority in plain words. It is not tax advice for your situation. The way this authority applies to your property is reviewed by a licensed tax professional. Citation is provided so you or your advisor can read the primary source.