Expensing Tools: The De Minimis Safe Harbor and Section 179

Buy a $1,800 wet saw and two sets of rules pull in opposite directions. The general rule, in the IRS’s Schedule C instructions: “Generally, you must capitalize costs to acquire or produce real or tangible personal property used in your trade or business, such as buildings, equipment, or furniture.” Capitalize means depreciate, a slice a year. The other rules, a handful of elections and safe harbors, let a small trade business deduct most tools in the year it buys them. The answer to “can I write it off this year” is usually yes. The useful question is which route, because each has its own paperwork and its own catch.

Route one: it is a supply

The materials and supplies rule (26 CFR 1.162-3) covers the small stuff with no election at all. A unit of property counts as a material or supply if it costs $200 or less, or has an economic useful life of 12 months or less. So do fuel, lubricants and similar items expected to be used up within 12 months, and parts bought to maintain or repair a unit of property. Blades, bits, a $150 grinder: you deduct them in the year they are first used or consumed. The Schedule C instructions add that incidental supplies you keep no inventory or records of use for can be deducted in the year you buy them, if that method clearly reflects income. The $200 figure is set by the regulation and can be changed by published IRS guidance. One interaction to know: if you make the de minimis election below, the regulation (26 CFR 1.263(a)-1(f)(3)(ii)) requires you to apply it to the materials and supplies that also qualify for it, so those are deducted in the year paid, under the safe harbor.

Route two: the de minimis safe harbor

This is the answer to the $1,800 question for most small contractors. A business without an applicable financial statement (in the regulation, a filing with the SEC or a certified audited statement, among a few others) may deduct property costing up to $2,500 per invoice, or per item as substantiated by the invoice. With such a statement the limit is $5,000. The $2,500 figure dates from Notice 2015-82, which raised it from $500 for taxable years beginning on or after January 1, 2016. The conditions:

• A policy in place on January 1. At the beginning of the year you must have an accounting procedure that treats as an expense property costing less than a set dollar amount (or with a useful life of 12 months or less), and you must expense the item in your books under it. Without an applicable financial statement the IRS says the procedure need not be written, but it must be “a consistent accounting procedure or policy existing at the beginning of the taxable year.” Set it at the $2,500 limit; a policy of $1,000 would leave the $1,800 saw out, because the saw must be expensed under your own policy.
• An election every year. Attach a statement titled “Section 1.263(a)-1(f) de minimis safe harbor election” with your name, address, taxpayer identification number and a statement that you are making the election, to your timely filed original return (including extensions). It covers every qualifying amount paid that year; you cannot pick and choose. It cannot be revoked, and it cannot be made on an amended return without first getting the IRS’s consent to a late election. No Form 3115 is filed. For an S corporation or a partnership, the business elects, not the owners.
• Delivery and installation count. Additional costs on the same invoice, such as delivery fees or installation, are part of the property’s cost. On an invoice with several items they are spread by a reasonable method: specific identification, pro rata, or a weighted average by relative cost.
• No splitting. The anti-abuse rule targets invoices created to break into components property you would normally buy as a single unit, to slip under the limit.
• Not for inventory or land. Both are excluded, as are certain spare parts.

On Schedule C, the instructions are blunt: deduct these amounts as other expenses in Part V and “don’t include these amounts on any other line.” One catch shows up later. Property expensed under the safe harbor is not treated on a sale as a capital asset or as section 1231 property, so selling the saw does not get capital-gain treatment.

Route three: bonus depreciation, which happens unless you say no

Above $2,500, the next route is usually automatic: a 100% first-year deduction, permanent for qualified property acquired and placed in service after January 19, 2025 (Notice 2026-11). It applies unless you elect out for a whole class of property, such as all your 5-year property for the year (Form 4562 instructions). The 2025 law behind it, the elect-out statement and a truck’s own limits are in Writing Off the Truck. Bonus depreciation is depreciation, so it goes on Form 4562, which you must file for any year you claim depreciation on property placed in service that year.

“Placed in service” means ready and available for use, not paid for. IRS Publication 946 (Pub 946) gives the example of a machine delivered last year but not installed and operational until this year: it is placed in service this year.

If you elect out, the slow schedule applies. Pub 946’s Table B-2 puts assets used by general building, special trade, heavy and marine construction contractors in asset class 15.0, Construction: a class life of 6 years and a 5-year recovery period under the general system. Under the half-year convention, Table A-1 spreads 5-year property over six tax years: 20%, 32%, 19.2%, 11.52%, 11.52% and 5.76%.

Route four: section 179, chosen item by item

Section 179 is an election, not a default, and its strength is control: on Form 4562 you name each item and how much of its cost you are expensing. Pub 946’s rules for it:

• Bought, for the business, from someone unrelated. The property must be acquired by purchase for use in your trade or business. A gift or inheritance does not count, and neither does a purchase from a related person; for this rule your family is your spouse, ancestors and lineal descendants. Pub 946’s example: two sewing machines bought from the taxpayer’s father do not qualify.
• More than 50% business use in the year it goes into service, and only the business share of the cost counts.
• Two limits. The 2026 dollar limit, $2,560,000 (Rev. Proc. 2025-32), rarely binds a small contractor. The business income limit can: the deduction cannot exceed your taxable income from actively running a trade or business that year, and the rest carries to the next year.
• Flexible paperwork. For property placed in service in 2025, Pub 946 allows the election on the original return, filed on time or not, or on an amended return, and it can be revoked on an amended return without IRS approval.
• A price later. If business use drops to 50% or less in any year of the recovery period, part of the deduction comes back as ordinary income on Form 4797. On a sale, Pub 946 sends you to the section 1245 recapture rules.

Your state return may not follow

The federal answer is not always the state answer. California’s instructions for Form FTB 3885A list section 168(k) bonus depreciation among the differences between California and federal law, and cap section 179 for California at $25,000, reduced once the cost of section 179 property placed in service passes $200,000. A tool written off in one year on the federal return can be spread over several on a state return. Check your own state’s depreciation form before assuming the two match.

One year of tool buys, sorted

Say a tile setter runs a sole proprietorship with no audited statements, has a policy from January 1, 2026 to expense items costing up to $2,500, and buys these in 2026:

Everything is deducted for 2026, provided she attaches the de minimis election to her 2026 return. Had she elected out of bonus depreciation for her 5-year property and skipped section 179, the mixer would come off over six returns at the Table A-1 rates: $640, $1,024, $614.40, $368.64, $368.64 and $184.32. The regulation’s own examples show why the invoice matters: one lists 1,250 computers with a price per item, and each item is tested on its own.

The records each route needs

1. Every invoice, itemized. “Per item as substantiated by the invoice” means the invoice must show each item’s price. Ask the supplier for an itemized one at the counter.
2. The policy, dated January 1. One sentence in your books file: “Property costing up to $2,500 per item or invoice is expensed when bought.” Not required in writing without an applicable financial statement, but it is the proof that it existed at the start of the year.
3. The books showing it expensed, under that policy, and a copy of the election statement filed with each year’s return.
4. For section 179 property, Pub 946 asks for records that identify each item and show how you acquired it, from whom, and when you placed it in service.
5. A simple asset list for everything depreciated: item, cost, date placed in service, method. It is what your preparer needs, and what a sale years later is figured from.

The rest of Schedule C, from the phone to the home office, is in What Can You Deduct?, and how long to keep these files is in How Long to Keep Business Records.

General information, not legal or tax advice. Rules change and vary by state; check with the agency named above or a professional for your situation.