De minimis safe harbor: expense up to $2,500 an item

The de minimis safe harbor is an annual tax election that lets a business deduct the cost of tangible property, like laptops, monitors and furniture, instead of capitalizing it, as long as each item or invoice costs $2,500 or less. A company with audited financial statements can go up to $5,000, and either way it has to expense the same items on its own books.

The rule is in Treasury Regulation §1.263(a)-1(f), and the IRS explains it on its page on the tangible property regulations. This guide covers the two limits, the book policy you need, what counts toward the limit, how to make the election, a worked example, and why the election still matters now that bonus depreciation is back at 100%.

What is the de minimis safe harbor

It is an exception to the rule that property you buy for the business is a capital asset, recorded on the balance sheet and depreciated over its life. Under the safe harbor, an item at or under the limit is deducted in the year you pay for it, so you stop deciding, purchase by purchase, whether a $900 monitor is an asset.

Once you elect it, it is not optional item by item. The regulation says a taxpayer using the safe harbor "may not capitalize" qualifying amounts, and the election covers all amounts paid in the year that meet the requirements. It also covers materials and supplies that fit under the limit.

Some property is excluded whatever it costs: inventory, land, and certain rotable and spare parts. For a software company, that leaves the usual purchases: computers, monitors, phones, furniture and small office equipment.

What is the de minimis safe harbor limit

The limit is $2,500 per invoice, or per item as substantiated by the invoice, for a company without an applicable financial statement. With one, the limit is $5,000. Most seed and Series A startups have no applicable financial statement, so their limit is $2,500 an item.

The regulation itself still says $500 for a company without an applicable financial statement. The IRS raised that figure to $2,500 for taxable years beginning on or after January 1, 2016, in Notice 2015-82, which is why every current source quotes $2,500.

An applicable financial statement, in the IRS's description, includes a financial statement filed with the SEC and "certified audited financial statements accompanied by a CPA report," such as ones prepared for a lender or for shareholders. A startup that gets its first audit for its board or a loan moves to the $5,000 limit, along with a stricter rule about its policy, described below.

Do you need a written capitalization policy

Without an applicable financial statement, the policy does not have to be written. You need an accounting procedure, in place at the start of the year, that expenses property costing less than a set dollar amount, and you have to follow it in your books. With an applicable financial statement, the procedure must be in writing.

That is where much of the advice online goes further than the IRS does. The IRS answers the question directly: without an applicable financial statement, "you are not required to have written accounting procedures," but you must expense amounts on your books under "a consistent accounting procedure or policy existing at the beginning of the taxable year."

In practice, write it down anyway. A one-line policy dated January 1, such as "we expense tangible property costing $2,500 or less per item," is the easiest evidence that the procedure existed at the start of the year, and it is required the year you have audited statements. The book side matters as much as the tax side: an item capitalized on the books does not qualify for the election.

What counts toward the $2,500

The test is the cost of each item as shown on the invoice. Ten chairs at $450 each on one invoice qualify, because each item is $450. But delivery, installation or setup billed on the same invoice must be added to the item's cost, and when one invoice covers several items, those extra costs are spread across them.

Paragraph (f)(3)(i) of the regulation sets the rule. Additional costs such as "delivery fees, installation services, or similar costs" count when they are on the same invoice as the property, and are allocated by a reasonable method, such as pro rata by cost. Costs billed on a separate invoice do not have to be added.

That makes the invoice part of the answer. A $2,450 laptop is under the limit on its own. Add $120 of setup to the same invoice and it is $2,570, over the limit, and the safe harbor no longer covers it.

A worked example: one year of equipment

A Delaware C-corp with no audited statements and a policy, in place on January 1, 2026, of expensing items costing $2,500 or less, buys equipment on four invoices during 2026. Two invoices qualify in full. One item is over the limit on price alone, and one goes over only because of setup on the same invoice.

The $180 of shipping on invoice 1 is spread pro rata, $30 to each laptop, so each one costs $2,130 and still qualifies. Under the election, $17,280 is deducted in 2026 and expensed on the books in the same way. The remaining $7,370 is capitalized as two fixed assets.

Had invoice 4's setup been billed separately, that laptop would have been $2,450 and expensed too. Asking vendors to invoice setup on its own is a legitimate way to keep an item under the limit.

Does it still matter with 100% bonus depreciation

Yes, though mostly for your books. The One Big Beautiful Bill Act, section 70301, made 100% bonus depreciation permanent for property acquired after January 19, 2025, so the $4,800 workstation is likely deductible in 2026 anyway. The safe harbor still keeps small items off the fixed-asset register.

The same law raised the section 179 expensing limit to $2,500,000, reduced once property placed in service passes $4,000,000, for taxable years beginning after December 31, 2024 (section 70306). Between the two, most startup equipment can be deducted in its first year whether or not you elect the safe harbor.

The difference is on the balance sheet. Bonus depreciation is a tax deduction; your books still depreciate the asset over its life, so every laptop becomes a fixed asset with its own schedule and a book-tax difference to track. Under the safe harbor, a $1,200 monitor is an expense on the return and on the books, and nobody tracks it again. For an early-stage company, that is most of what it buys.

How do you make the de minimis safe harbor election

You attach a statement to your timely filed original federal return, including extensions, for each year you want it. The statement is titled "Section 1.263(a)-1(f) de minimis safe harbor election" and gives the company's name, address and taxpayer identification number, and says it is making the election.

For a calendar-year C-corp, the statement goes with Form 1120, which is due April 15 or October 15 on extension, as covered in the Form 1120 due date guide. The election is annual: a statement filed with the 2026 return covers amounts paid in 2026, and the 2027 return needs its own.

The IRS says the election is not a change in method of accounting, so there is no Form 3115 to make it or to stop. The statement goes with the timely filed original return; for a missed election, the regulation points to the extension rules in sections 301.9100-1 through 301.9100-3.

What to do this month

The de minimis safe harbor costs one line of policy and one statement a year. Set the policy before the year starts, because the regulation tests what was in place on the first day, and keep your books in line with it all year.

1. Write a capitalization policy dated the first day of your next taxable year: expense tangible property costing $2,500 or less per item.
2. Book qualifying purchases to expense, not to fixed assets, so the books match the election.
3. Ask vendors to bill setup and installation on a separate invoice when it would push an item over $2,500.
4. Capitalize anything over the limit, and have your CPA decide between bonus depreciation and section 179 for it.
5. Attach the election statement to every year's Form 1120.
6. When you get audited statements, move to the $5,000 limit with a written policy.

The policy only works on accrual books kept by the same rules all year. LedgerIt keeps a startup's books with the policy applied to every purchase, so the return and the ledger agree.