The Other Part Of The Economic Stimulus Act Of 2008

What it means for businesses

Undoubtedly, by now you have all heard of the Economic Stimulus Act of 2008 and may have already received the tax rebate checks that were sent in May and June. The media have done a wonderful job of broadcasting and informing the public of this part of the law. Unfortunately, the media have not informed taxpayers and businesspeople of the other aspects of the Economic Stimulus Act of 2008, which also contains provisions to entice businesses to spend more money on large investments. Specifically, the Section 179 Deduction, an additional depreciation election, has been greatly enhanced, and Bonus Depreciation, also an additional depreciation section, is back.

Enhanced 179 Deduction
Congress has greatly enhanced Section 179 expensing during the past eight years. Section 179 expensing was limited to $25,000. With economic stimulus and growth acts in the past decade, the Section 179 expense found its way to $100,000 annually and was then indexed for inflation. Before the 2008 stimulus law, businesses could expense up to $128,000 under the Small Business and Work Opportunity Act of 2007 version of Section 179. As part of the Stimulus Act of 2008, businesses can now expense up to $250,000 of equipment purchases under Section 179 of the Internal Revenue Code. The 2008 Act also increases the threshold phase-out amount to $800,000. This enhanced amount applies to property purchased and placed into service during 2008.

As part of the Stimulus Act of 2008, businesses can expense up to $250,000 of equipment purchases.

As in the past, the phase-out is dollar for dollar. It starts at $800,000 and is completely phased out at $1,050,000. The goal of this element of the Act is that businesses radically increase their business spending on investment assets, including all types of equipment. The Act makes no changes on the type of equipment that can be expensed under Section 179. As in the past, taxpayers who lease equipment are entitled to the full amount of their deduction on leased equipment.

Temporary Bonus Depreciation
Congress has used Bonus Depreciation in the past to encourage economic activity. The latest version of Bonus Depreciation expired on December 31, 2004.

The bonus amount of the depreciation is now 50 percent for qualifying property. The provisions of the new law are very similar to the version passed by Congress in 2003 and 2004. Under the new law, equipment must be of original use beginning after December 31, 2007, and before January 1, 2009. The property must be eligible for Modified Accelerated Cost Recovery System (MACRS) 20-year depreciation period or less, water utility property, computer software or qualified leasehold property. Further, MACRS property, which can be depreciated for longer than 10 years, but less than 20 years, is eligible for bonus depreciation until December 31, 2009.

Once again, the goal here is that business investors will spend more money to help an economy ailing from a number of factors.

Under the Stimulus Act of 2008, individual taxpayers are by far not the only taxpayers who benefit. The Stimulus Act of 2008 has tax benefits for businesses as well. Be sure to make your accountant and business decision-maker aware of these key provisions in the Economic Stimulus Act of 2008 so that you can take advantage of the new law.

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Bart A. Basi Meet the Author
Bart A. Basi is senior advisor at the Center for Financial, Legal & Tax Planning Inc., located in Marion, Illinois, and on the Web at www.taxplanning.com.