Is it Time to Revisit Your de Minimis Capitalization Policy?

Financial Institutions

September 01, 2015
by Karen Icenogle, EA

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Karen Icenogle Karen Icenogle, EA

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Since this was a taxpayer-friendly provision, many financial institutions adopted capitalization policies conforming to the new rules and elected the maximum de minimis threshold of $5,000.  This often caused some unexpected results.  Many financial institutions ran into situations in which they purchased several units of property at one time and expected to capitalize them as a “large” purchase but ended up having to expense them because each unit was individually under the $5,000 per item de minimis threshold set in their policy.  A common example of this would be purchasing 30 computers for $40,000.  Since each computer is under $5,000, the policy dictates that the entire amount is expensed both for book and tax.  While the deduction results in current tax savings, the $40,000 expense would be a hit to book net income and also a hit to regulatory capital.  Regulatory capital is a key piece to the overall financial statements and financial institution regulatory requirements.  Therefore, the de minimis amount should be carefully considered.

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