Safe harbor de minimus: if one thing on the invoice is above the $2500 level, is the entire order disqualified?

[Golfer2016]

TP boughta bunch of furniture for his business.  Most items on his invoice were listed out as $2000, but a few items were more expensive.  Therefore is the whole invoice disqualified for eh safe harbor de-minimus?  If it is, that is OK because we will do the bonus depreciation.  In a way we want it to be disqualified, so we can do the bonus depreciation which may be better (for Section 199A reasons).  

My understanding is that if you have elected de-minimus you have to stay with it. 

[sjrcpa]

The de minimis safe harbor is an annual election.

One item on an invoice above the threshold does not disqualify other items on the invoice.

[Golfer2016]

Thanks.   So that means if the TP gets an invoice that just has one item under the de-minium threshold, they need to expense that, but then depreciate everything else?  I have seen clients who have gotten 20 page invoices for equipment and that could be very annoying becaue maybe they just have one thing on there below the limit . 

Nolo seems to say you need to add additional costs on the invoice, though.  

I think it may be best for businesses to take the annual election, but sign a smaller requirement, like $250.  that way we are not doing bonus depreciation on small annoying orders.  However, we would still then be able to depreciate all other items would could be beneficial for 199A.  Thoughts?

"In determining whether the cost of an item exceeds the $2,500 or $5,000 threshold, you must include all additional costs that are on the same invoice with the tangible property—for example, delivery and/or installation fees. However, you are not required to include “additional costs of acquiring or producing” the property that “are not included in the same invoice as the tangible property.” The best strategy is to have such additional costs included on a separate invoice."

https://www.nolo.com/legal-encyclopedia/new-irs-de-minimis-rule-deducting-business-property.html

[TaxGuyBill]

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@Golfer2016 wrote:

I think it may be best for businesses to take the annual election, but sign a smaller requirement, like $250. 

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The 'default' rule is that if you DON'T make the De Minimus Election, then items $200 and less are deducted.  Items over $200 are usually depreciated (larger businesses may be more flexible with that).

The threshold for the De Minimus election is based on the taxpayer's "accounting procedures" at the beginning of the year for their 'books'.  So if their "procedure" for their 'books' is to deduct items $500 and less and depreciate items over $500, then the De Minimis threshold is $500.   Many small small taxpayers really don't consider depreciation, so in their mind everything is deducted.  In that case, you use $2500 as the threshold (personally, I have the taxpayers sign something in regards to that).

[qbteachmt]

"Nolo seems to say you need to add additional costs on the invoice, though."

But the IRS sets the regulations:

https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations

[Golfer2016]

I agree.  But in the case where a client had a 20 page invoice, and one item under $200, would you expense the $200 item but then depreciate everything else?  So you would separate items on the invoice.  

Also, if this was for furniture, how would you deal with the installation fee or design fee?  I was thinking you would add it to what you are depreciating if over $200 like Bill said.  However, if there was an expense on the invoice for $100, i would need to allocate a portion of it pro-rata.  

[qbteachmt]

"would you expense the $200 item but then depreciate everything else?"

It depends on the facts and circumstances.

"So you would separate items on the invoice."

Example: I run a water district. A bunch of $240 water meters + a $3,500 pump motor. Yes, I would separate these. But, a bunch of $240 water meters as part of a $300,000 system-wide improvement project = no, that would not be separated.

"Also, if this was for furniture, how would you deal with the installation fee or design fee?"

Example: Design fee + engineering fee + construction fee = the Building Costs. Furniture and the interior designer or decorator fee = the Furniture, Fitting and Equipment asset. Two different classes of assets.

"I was thinking you would add it to what you are depreciating if over $200 like Bill said. However, if there was an expense on the invoice for $100, i would need to allocate a portion of it pro-rata."

Again, it depends on what it is, why it is there, what it is associated with, how different it is from the other stuff, etc. Fencing is not the same as Furniture; these would be listed and tracked separately.

[Golfer2016]

Specifically for my case the client furnished a full office and I have a huge invoice for it.  I just want to lump all the furniture costs as one asset.  As opposed to finding a few of the furniture items that are less than the de-minimus amount and stripping those off.  Thoughts?  

[qbteachmt]

Yes, that is all one asset for the date placed in service, for that one asset class.