Legislation would amend new IRS safe harbor regulations

Rep. Cory Gardner (R-Colo.) introduced legislation on Thursday that would amend new IRS regulations that pertain to maintenance costs for equipment used by small businesses and farms.

The IRS released final regulations regarding expenses and capitalization rules for tangible property in September.

The regulations provide a safe harbor provision that allows owners of small businesses and farms to classify equipment maintenance expenditures of up to $500 as a tax-deductible repair expense.

Garnder’s measure would increase the safe harbor limit to $1,000.

“The safe harbor provision recommended by the IRS has good intentions, but the $500 threshold is simply too low,” Gardner said. “Small businesses and farmers will be better served under these rules with a $1,000 threshold. This legislation is a step in the right direction for farmers and small businesses in Colorado.”

Under the current safe harbor IRS regulations, taxpayers must determine whether maintenance costs that are more than $500 materially increase the original equipment’s capacity, efficiency or productivity.

In cases where maintenance costs of more than $500 materially increase the equipment’s value, the cost would be depreciated over the life of the underlying property.

The legislation introduced by Gardner would raise the safe harbor limit for maintenance costs to $1,000 and allow taxpayers to deduct the expenditure in the current tax year.