IRS Raises Tangible Property Expensing Threshold


A recent IRS announcement stated that it will raise the deductible amount from $500 to $2,500 for purchases of tangible property by taxpayers without applicable financial statements. After receiving more than 150 comments advocating that the limit on deductions for purchases of property should be raised to anywhere between $750 and $100,000, the IRS made this change.

Taxpayers can elect to deduct expenses for the purchase of property that would have to otherwise be capitalized under current tangible property regulations. Taxpayers without applicable financial statements (AFSs) are limited to $500 per invoice or item, while taxpayers with AFSs have a limit of $5,000. (The IRS justifies this as admissible because those with AFSs are more likely to follow GAAP rules.)  Many professionals objected to the de minimis amount of $500 after the regulations were issued, stating, among other things, that a computer or smartphone purchase usually exceeds the $500 mark.

This new de minimis amount applies only to costs for tax years beginning on or after January 1, 2016. With these updated regulations, businesses can still claim otherwise deductible repair and maintenance costs despite whether or not they exceed the $2,500 threshold. The IRS will not raise the issue of a higher amount during an audit for earlier tax years and will not pursue the issue for any tax year beginning after December 31, 2011, and ending before January 1, 2016. Furthermore, the IRS will not push the issue for any case pending in IRS examination, Appeals, or the Tax Court.

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