IRS Increases the Small Business De Minimis Safe Harbor Deduction to $2,500

The de minimis safe harbor allows businesses to currently deduct the cost of personal property items they use in their business. As originally enacted in 2014, the de minimis safe harbor was limited to items that cost up to $500 per invoice, or $500 per item, as substantiated by the invoice. However, the IRS has announced that the de minimis limit will be increased to $2,500, making it five times better than before. (Note: The limit has been and will remain $5,000 for larger businesses with audited financial statements.)

Technically, the increase to $2,500 will not take effect until 2016. However, the IRS says it will not question or challenge taxpayers who use the $2,500 limit in 2015, provided they meet the requirements. To use this deduction, you must file an annual election with your tax return—something that is easy to do. Additionally, you must treat such items as expenses in your accounting records. (IRS Notice 2015-82.) When you make this election, it applies to all expenses you incur that qualify for the de minimis safe harbor. You cannot pick and choose which items you want to include.

The increase is particularly helpful for landlords, because it will enable them to currently the deduct the cost of appliances and other items they purchase for rental units that cost up to $2,500—for example, a landlord may now deduct a $2,000 stove or $2,500 garage door.