De Minimis Safe Harbor Election (expense rather than depreciate?)

[Robert Steele]

Does anyone know what to make of these new IRS rules that came into effect for 2014? (but I believe are back dated to 2011)

It sounds to me like we can start deducting a large number of those repairs we used to have to depreciate.

Repairs and Maintenance

The regulations retain the rule from the 2011 temporary regulations, which provided that amounts paid for repairs and maintenance to tangible property are deductible if the amounts paid are not required to be capitalized under §1.263(a)-3. In addition, the regulations generally retain the rules of the 2011 temporary regulations for determining the unit of property and for determining whether there is an improvement to a unit of property.

Special rule for improvements by small taxpayers

The regulations include a safe harbor election for building property held by taxpayers with gross receipts of $10,000,000 or less (“a qualifying small taxpayer”). The final regulations permit a qualifying small taxpayer to elect to not apply the improvement rules to an eligible building property if the total amount paid during the taxable year for repairs, maintenance, improvements, and similar activities performed on the eligible building does not exceed the lesser of $10,000 or 2 percent of the unadjusted basis of the building.

The safe harbor for building property held small taxpayers may be elected annually on a building-by-building basis by including a statement on the taxpayer’s timely filed original Federal tax return, including extensions, for the year the costs are incurred for the building. Amounts paid by the taxpayer to which the taxpayer properly applies and elects the safe harbor are not treated as improvements to the building under §1.263(a)-3 and may be deducted under §1.162-1 or §1.212-1, as applicable, in the taxable year that the amounts are paid or incurred, provided the amounts otherwise qualify for deduction under those sections. 2. Routine maintenance safe harbor

The 2011 temporary regulations included a safe harbor under which routine maintenance costs for personal property were currently deductible. However, no such safe harbor was provided for building. The regulations now include a safe harbor for routine maintenance of buildings.

Under this routine maintenance safe harbor, an amount is deemed not to improve a unit of property, and is, therefore, deductible, if it is for the recurring activities that a taxpayer (or a lessor) expects to perform as a result of the taxpayer’s (or the lessee’s) use of the unit of property to keep the unit of property in its ordinarily efficient operating condition. An activity is considered routine with respect to a building only if, at the time the building is placed in service, the taxpayer reasonably expects to perform the activities more than once during any ten year period.