This information may apply to your nonprofit organization if you are subject to Unrelated Business Income Tax (UBIT).
Under the repair regulations, amounts for tangible property (and materials and supplies) that exceed $200 and have a useful life in excess of 12 months must be capitalized for federal income tax purposes and depreciated over the appropriate number of years. These regulations apply to small businesses, including nonprofit organizations with an unrelated business activity.
However, under the de minimis election, a nonprofit organization can substitute its capitalization policy (items expensed if under a certain dollar amount) for the $200 limit. If a nonprofit organization has a written capitalization policy in place before the beginning of the 2016 tax year and does not have an audited financial statement, it may substitute the $200 limit for the amount used in its financial statements, not to exceed $2,500 (safe harbor). Prior to 2016, the IRS allowed a safe harbor of $500. However, if the nonprofit organization does have an audited financial statement and a written capitalization policy in effect before the beginning of the 2016 tax year, then it may increase this amount to up to $5,000. This amount is unchanged from prior years.
If your organization has a capitalization policy, but it is not in writing, you will need to memorialize the policy before the beginning of the 2016 tax year. If you do have a written capitalization policy, now is a good time to review it to make sure it is meeting your needs. If you do not have a capitalization policy at all, it is imperative you put one in writing at the beginning of the taxable year, or you may have to capitalize all tangible property costing more than $200 and lasting more than 12 months.
If you have any questions, please contact your advisor to discuss your specific facts and circumstances and the appropriate capitalization policy to adopt.
