Definition
Under Treas. Reg. 1.263(a)-1(f), a taxpayer may deduct amounts paid for tangible property that falls below a per-invoice or per-item limit. The limit is $5,000 for a taxpayer with an applicable financial statement, such as audited financials, and $2,500 for a taxpayer without one, after Notice 2015-82 raised it from $500. The taxpayer must have written accounting procedures at the start of the year, treat the costs as expense on its books, and attach an election statement to a timely filed original return, including extensions, each year. The election cannot be revoked. Inventory and land are excluded.
Why it matters in an audit or review
The policy sets the book capitalization threshold and shapes the tax return. Auditors compare the written policy with the fixed asset testing threshold and with the election on the return, and check that large purchases were not split across invoices to stay under the limit.
Example
Illustrative: a company without an applicable financial statement buys 10 chairs on one invoice for $2,300 in total and a printer for $2,700. With the $2,500 per-item limit, each chair at $230 qualifies and the printer does not, so the printer is capitalized.
Common mistakes
- Using the $5,000 limit without audited financials.
- Forgetting to attach the election statement.
Sources
- Treas. Reg. 1.263(a)-1(f): https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1
- IRS, Notice 2015-82: https://www.irs.gov/pub/irs-drop/n-15-82.pdf
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error