WASHINGTON
— In addition to providing stimulus payments to individuals, the Economic
Stimulus Act of 2008 provides incentives to businesses. These incentives include
a special 50-percent depreciation allowance for 2008 purchases and an increase
in the small business expensing limitation for tax years beginning in 2008.
50-Percent
Special Depreciation Allowance
Depreciation is an income
tax deduction that allows a taxpayer to recover the cost or other basis of certain
property over several years. It is an annual allowance for the wear and tear,
deterioration or obsolescence of the property.
Under the
new law, a taxpayer is entitled to depreciate 50 percent of the adjusted basis
of certain qualified property during the year that the property is placed in service.
This is similar to the special depreciation allowance was previously available
for certain property placed in service generally before Jan. 1, 2005, often referred
to as “bonus depreciation.” To qualify for the 50 percent special depreciation
allowance under the new law, the property must be placed in service after Dec.
31, 2007, but generally before Jan. 1, 2009.
To reflect
the new 50-percent special depreciation allowance, the IRS is developing a new
version of the depreciation and amortization form for fiscal year filers. The
new form will be designated as the 2007 Form 4562-FY.
Section
179 Expensing
In general, a qualifying taxpayer can elect
to treat the cost of certain property as an expense and deduct it in the year
the property is placed in service instead of depreciating it over several years.
This property is frequently referred to as section 179 property, after the relevant
section in the Internal Revenue Code.
Under the new law,
a qualifying business can expense up to $250,000 of section 179 property purchased
by the taxpayer in a tax year beginning in 2008. Absent this legislation, the
2008 expensing limit for section 179 property would have been $128,000. The $250,000
amount provided under the new law is reduced if the cost of all section 179 property
placed in service by the taxpayer during the tax year exceeds $800,000.
The
new law does not alter the section 179 limitation imposed on sport utility vehicles,
which have an expense limit of $25,000.
