Also see: Sample IRS Election Statement: Annual De Minimis Safe Harbor Election Statement.
             Sample IRS Election Statement: Election to Capitalize Repair and Maintenance Costs.

Sample IRS Election Statement: Small Taxpayer Safe Harbor Election for Building Property.

(Parker Tax Publishing March 14, 2015)

The 2013 final "repair regulations" added a safe harbor election for building property held by taxpayers whose average annual gross receipts for the three preceding tax years is $10 million or less. Such taxpayers are considered a "qualifying small taxpayer" for purposes of the regulation (Reg. Sec. 1.263(a)-3(h)).

Under the safe harbor, a qualifying small taxpayer may elect to not apply the improvement rules to an eligible building property if the total amount paid during the tax year for repairs, maintenance, improvements, and similar activities performed on the eligible building does not exceed the lesser of $10,000 or 2 percent of the unadjusted basis of the building (Reg. Sec. 1.263(a)-3(h)(1)).

Eligible building property includes a building unit of property that is owned or leased by the qualifying taxpayer, provided the unadjusted basis of the building unit of property is $1 million or less (Reg. Sec. 1.263(a)-3(h)(4)).

Amounts paid by the taxpayer to which the taxpayer properly applies and elects the safe harbor are not treated as improvements to the building under Reg. Sec. 1.263(a)-3 and may be deducted under Reg. Sec. 1.162-1 or Reg. Sec. 1.212-1, as applicable, in the tax year that the amounts are paid or incurred, provided the amounts otherwise qualify for deduction under those sections (Reg. Sec. 1.263(a)-3(h)(7)).

A qualifying small taxpayer may elect the small taxpayer safe harbor by including a statement with its tax return for the year of the election. The statement must be titled, "1.263(a)-3(h) Safe Harbor Election for Small Taxpayers," and include the taxpayer's name, address, taxpayer identification number, and a description of each eligible building property to which the taxpayer is applying the election. In the case of an S corporation or a partnership, the election is made by the S corporation or by the partnership, and not by the shareholders or partners.

Sample Election Statement

(Reg. Sec. 1.263(a)-3(h)) Small Taxpayer Safe Harbor Election for Building Property

[Taxpayer Name]

[Taxpayer Address]

[TIN]

The taxpayer is hereby making the safe harbor election for small taxpayers under Reg. Sec. 1.263(a)-3(h). The election applies to the following eligible building property (or properties):

[Description of each eligible building property to which the election applies]

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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