# Expense or capitalize: the de minimis safe harbor and the 12-month rule
Governs the books' materiality policy (Wanderland's AGENTS.md) and prepaid-expense schedules. Note the dollar limit: the regulation says $500 for a taxpayer without an applicable financial statement; Notice 2015-82 raised it to $2,500 for taxable years beginning on or after January 1, 2016. The election is made yearly on the return.

## Treas. Reg. §1.263(a)-1(f)(1)(ii)
Source: <https://www.ecfr.gov/current/title-26/part-1/section-1.263(a)-1>  
Retrieved: 2026-10-13  
SHA-256 of the retrieved file (`ecfr263a1.txt`): `ec4f68a4aadc00807ea7e2f55ae6340d0cadd2d8866c0940e851e34d7771abed`

> Taxpayer without applicable financial statement. A taxpayer electing to apply the de minimis safe harbor may not capitalize under § 1.263(a)-2(d)(1) or § 1.263(a)-3(d) nor treat as a material or supply under § 1.162-3(a) any amount paid in the taxable year for property described in paragraph (f)(1) of this section if— (A) The taxpayer does not have an applicable financial statement (as defined in paragraph (f)(4) of this section); (B) The taxpayer has at the beginning of the taxable year accounting procedures treating as an expense for non-tax purposes— (1) Amounts paid for property costing less than a specified dollar amount; or (2) Amounts paid for property with an economic useful life (as defined in § 1.162-3(c)(4)) of 12 months or less; (C) The taxpayer treats the amount paid for the property as an expense on its books and records in accordance with these accounting procedures; and (D) The amount paid for the property does not exceed $500 per invoice (or per item as substantiated by the invoice) or other amount as identified in published guidance in the Federal Register or in the Internal Revenue Bulletin

## Notice 2015-82, I.R.B. 2015-50
Source: <https://www.irs.gov/irb/2015-50_IRB>  
Retrieved: 2026-10-13  
SHA-256 of the retrieved file (`irb.txt`): `d08df482a882a7b08484df28686c7ee9bafa3e00c705acbe031b1dbf880295e1`

> This notice increases the de minimis safe harbor limit provided in regulations § 1.263(a)–1(f)(1)(ii)(D) for a taxpayer without an applicable financial statement from $500 to $2,500.

> This Notice is effective for costs incurred during taxable years beginning on or after January 1, 2016.

## Treas. Reg. §1.263(a)-4(f)(1): the 12-month rule
Source: <https://www.ecfr.gov/current/title-26/part-1/section-1.263(a)-4>  
Retrieved: 2026-10-13  
SHA-256 of the retrieved file (`ecfr263a4.txt`): `da643efdbd84756e67e6a88c7bdee8daae653c420d8252b92d4fe19ae539339a`

> In general. Except as otherwise provided in this paragraph (f), a taxpayer is not required to capitalize under this section amounts paid to create (or to facilitate the creation of) any right or benefit for the taxpayer that does not extend beyond the earlier of— (i) 12 months after the first date on which the taxpayer realizes the right or benefit; or (ii) The end of the taxable year following the taxable year in which the payment is made.