Tax Flash
Economic Stimulus Act of 2008
On February 13, President Bush signed the Economic Stimulus Act of 2008 (“the Act”) into law intending to jump-start our economy, in part through tax incentives aimed at encouraging businesses to increase their investments in new equipment by the end of 2008. The Act provides a 50% bonus depreciation deduction on purchases of certain assets and doubles the Section 179 annual expensing limit to $250,000. These incentives are generally only available for eligible assets purchased during 2008.
Bonus Depreciation
Bonus depreciation was first allowed following the terrorist attacks of 2001. The Act provides an additional first year depreciation deduction equal to 50% of the adjusted basis of qualified property acquired after December 31, 2007, and placed in service before January 1, 2009. Property eligible for bonus depreciation includes:
- Tangible property with a recovery period of 20 years or less
- Purchased computer software
- Water utility property
- Qualified leasehold improvement property
Bonus depreciation may be available for certain property with a longer production period if that property is placed in service before December 31, 2009. In general, this extended provision applies to property with a recovery period of 10 years or more or transportation property with an estimated production period greater than one year and a cost in excess of $1 million. The extended application of bonus depreciation through 2009 may also apply to taxpayers purchasing aircraft property, but additional requirements must be met.
Bonus depreciation is allowed for AMT purposes as well as for regular tax purposes. In addition, the otherwise applicable “luxury auto” cap on first-year depreciation is increased by $8,000 for vehicles that qualify.
Increased Section 179 Expensing
Instead of depreciation, small business taxpayers may elect to expense the cost of qualified assets purchased during the tax year in which the assets are placed in service. The Act increases the amount that may be expensed for 2008 to $250,000 (from $128,000). This annual expensing limit is reduced by the amount by which the cost of qualifying property placed in service during 2008 exceeds $800,000 (the pre-Act limit was $510,000). It is limited by the amount of taxable income for the current year. These expensing rules are eased for qualifying empowerment zone property, renewal property, and GO Zone property.
As a result of this incentive, many businesses will be able to obtain a full deduction for the cost of business machinery and equipment purchased in 2008, thereby reducing the effective cost for those assets. What's more, there is no AMT adjustment with respect to property expensed under Section 179.
We Can Help
Your Moss Adams team is here to help you take advantage of these new tax incentives. To find out more about the Act and how it applies to your business get in touch with your local Moss Adams office.
