Differences between de minimis safe harbor election and section 179 (& when you *wouldn't* take it)?

[taxes4739]

Regarding the de minimis safe harbor election:

1) I understand that its purpose is to allow you to enter items up to $2500 as an expense rather than asset.  In other words, $2500 is the dollar value *up to which* it can be used to expense items.  But what's the dollar value *from which* it becomes relevant?  For instance, even without taking this, smaller items like $50 can already be expensed.  So then, at what point must you take this election in order to be allowed to expense something?  If an item is $100, can you just expense it without taking the election?  What about $200?  etc.

2) According to this question (https://ttlc.intuit.com/questions/3146193-when-they-say-if-you-take-the-de-minimis-safe-harbor-elect...), I understand that even if you take the election, you can still choose to enter each item as an asset if you wish.  So if you don't take it, items between $? and $2500 must be entered as assets - but if you do, they can either be assets or expenses.  But if that's true...why would anyone not take it, if you can just choose to enter things as assets anyway?  The interview specifically mentions that "once you make your election for your return, it will be very complicated to undo it if you change your mind" - but offers no information about what ramifications might result from taking it (in terms of what reason could there possibly be for wanting to undo it)?

3) The election allows you to expense items, thereby getting the full tax benefit this year.  Entering assets as section 179 asset does the same.  So...what benefit does this offer?  Why not just enter items as 179 assets, thereby getting the same tax benefit this year (of getting the full 'value' of the writeoff this year)?  It's the same result, no?

[Critter]

Both options will net you the same result ... the election was just to simplify tax preparation. The old rule said you had to enter an asset if it had a useful life of more than one year and depreciate/179 deduction it if the cost was more than $100.  This election raises the cost to $2500.

So if you were a lawn service company who buys 200 pieces of lawn equipment in a year ...all more than $100 each ... you no longer have to make 200 asset entries unless you didn't want to take the entire cost in the year of purchase. 

Also assets that are listed as assets & you take depreciation/179 deduction on them and you sell them prior to the end of the depreciation period you may need to recapture the depreciation taken ... this is not the same when you expense items.

[taxes4739]

So as I understand:

1) $100 is the minimum threshold.

2) I still don't know the answer to this one...?

3) It sounds like there's literally no reason to use 179 anymore (for items under $2500), right?  Expensing under the election is better in all cases.

Thanks! 🙂

[TaxGuyBill]

1)  Items $200 and less are deducted.

2)  If you make the election, do NOT enter those items as Assets.  Enter them as deductible expenses.  If you make the election, ALL items that qualify must be entered as deductible expenses, and you CAN'T depreciate those items.

3)  Yes, UNLESS you wanted to use Section 179 on some items, and use regular depreciation for others.  If you use the De Minimis election, ALL items that qualify must be deducted.

Although there is no way the IRS can prove you did not do this, there is another requirement to make the De Minimis election.  It must have been your 'policy' since the beginning of the year to deduct items under a specific amount for your non-tax purposes (for your 'books').  In other words, on or before January 1st, 2016, you needed to have made the decision "Hey, I'm going to deduct items under $2500 for my 'books'", otherwise you don't qualify for the election.

Actually, it's not necessarily $2500.  It is UP TO $2500.  Your decision to deduct those items for your 'books' can be for a different amount.  For example, if your decision was to deduct items under $1500 for your 'books', then the De Minimis election can only be used for items under $1500.

[taxes4739]

Hmm...so just to be sure, does that mean the answer here (<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/3146193-when-they-say-if-you-take-the-de-minimis-safe-harbor-elect...>) is actually incorrect?  It seems to say that "you are not required to report all purchases under the election.  For items costing $2500 or less [you can choose to include it under expenses or assets]."  That seems to conflict with "If you make the election, ALL items that qualify must be entered as deductible expenses, and you CAN'T depreciate those items"

Thanks again.

[TaxGuyBill]

That answer is mostly wrong.

If the item qualifies as a "rotable spare part, temporary spare part, or standby emergency spare part" (which have specific definitions), you may have the option to depreciate those.

Otherwise, the Regulations say "If a taxpayer elects to apply the de minimis safe harbor ... then the taxpayer must apply the de minimis safe harbor to amounts paid for all materials and supplies that meet the requirements".
<a rel="nofollow" target="_blank" href="https://www.law.cornell.edu/cfr/text/26/1.162-3">https://www.law.cornell.edu/cfr/text/26/1.162-3</a>

[taxes4739]

Understood - and phew, I'm glad I asked, because based on that other answer I was going to depreciate one or two larger items but expense all the rest!  Perhaps it might be good to correct that other answer, so that other people aren't misled 😉

And as just a final confirmation, since as you stated the lower limit is $200, it basically means that if I do make the election, everything between $200 and $2500 must be listed as an expense (cannot be depreciated).

Thanks again!

[TaxGuyBill]

Yes, everything between $200 and your "specified dollar amount" (usually $2500) must be listed as an expense.

Actually, my citation above isn't the ideal one, the better one is this:

"a taxpayer electing to apply the de minimis safe harbor ... may not capitalize ... any amount paid in the taxable year for tangible property if the amount specified under this paragraph (f)(1) meets the requirements"
<a rel="nofollow" target="_blank" href="https://www.law.cornell.edu/cfr/text/26/1.263(a)-1">https://www.law.cornell.edu/cfr/text/26/1.263(a)...>

[TaxGuyBill]

I also added an answer on that older post that you referenced.

[taxes4739]

And "may not capitalize" = "may not depreciate as an asset?"

[TaxGuyBill]

Yes.

[taxes4739]

Excellent.  Thanks so much again!  I'm sure glad I confirmed before filing 🙂