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Does the limit of $2500 for the Safe Harbor election apply to the total cost of laptop or just the business portion?

Note: I'm a sole proprietor with no financial statements, so I understand my Safe Harbor limit is $2500 not $5000.

If I purchase a computer for 50% business use and the total shown on the receipt is $4800, am I disqualified from expensing the business portion of the laptop ($2400) due to the actual cost of the laptop (over $4800)?

Second question - is listed property used less than 50% for business automatically disqualified from Safe Harbor elections? (I'm aware that computers are no longer classified as listed property, I'm curious about other equipment I use, such as digital cameras. I use these about 25% for business)

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4 Replies
DianeW777
Expert Alumni

Does the limit of $2500 for the Safe Harbor election apply to the total cost of laptop or just the business portion?

It applies to the business use percentage only. 

 

There is nothing in the IRS language that says you cannot use the DeMinimis Safe Harbor for listed property. 

 

You can choose to use the safe harbor method for that but if the business use percentage falls below 51% or if you sell it later, you must recapture the deduction you used to reduce your income.  The taxable amount, in that scenario, would be the difference of what you would have been allowed under regular depreciation and what you actually used to expense.

 

Listed property used 50% or less for business would not be disqualified from the DeMinimis Safe Harbor.

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Does the limit of $2500 for the Safe Harbor election apply to the total cost of laptop or just the business portion?

Although I haven't seen a solid answer, in my opinion the threshold is based on the TOTAL amount (not just the business percentage).

 

The Regulation uses the phrases "property costing less" and "amount paid for the property".  To me, that means the threshold is based on the full cost, not just the business percentage.

 

https://www.law.cornell.edu/cfr/text/26/1.263(a)-1#f

 

Does the limit of $2500 for the Safe Harbor election apply to the total cost of laptop or just the business portion?

Thanks so much for the speedy reply (Dyanne)!

If I'm understanding correctly, I CAN expense $2400 of a $4800 laptop if I use it 50% for business? 

Would you be able to point me to IRS literature that supports this? I imagine you can find this easier than I can, being a tax professional!

One part of your answer I am questioning is that everything I've read says there is no "recapture" with Safe Harbor property, since these items are now expenses rather than assets. Rather you must report any subsequent sale as regular income with a $0 basis. In addition, computers are no longer listed property, so even if it's converted fully to personal use in a later year, there is nothing to report until it's sold (then, as regular income)

Happy to be corrected on the latter point if I'm wrong!

Does the limit of $2500 for the Safe Harbor election apply to the total cost of laptop or just the business portion?

"Although I haven't seen a solid answer, in my opinion the threshold is based on the TOTAL amount (not just the business percentage)."

This is also my interpretation, despite the earlier answer. Thanks very much for the link, I'll take a look at that now.

 

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