President George W. Bush recently signed the Economic Stimulus Act of 2008 into law. In addition to the rebate checks that an estimated 130 million qualified lower- and middle-class tax filers will receive, the act offers an additional bonus for small business owners: $44.8 billion in business incentives. Alexandria, Va.-based Independent Electrical Contractors (IEC) encourages all of its members to read about the new incentives and consult a tax professional for more information.
According to the IEC, the new law doubles the small business expensing limit (Section 179 of the IRS Code) for 2008 to $250,000 and increases the threshold for reducing the deduction to $800,000. It applies to property purchased and placed in service in tax years beginning in 2008. Generally, the property must be tangible personal property that is actively used in the taxpayer’s business and for which a depreciation deduction would be allowed. The property must be used more than 50% for business and must be newly purchased. The deduction phases out at a dollar-for-dollar rate beginning at $800,000, thus phasing out completely if qualifying purchases exceed $1,050,000.
In addition, the IEC cites that the new law provides qualifying taxpayers 50% first-year bonus depreciation of the adjusted basis of qualifying property. To be eligible to claim bonus depreciation, property must be (1) eligible for the modified accelerated cost recovery system (MACRS) with a depreciation period of 20 years or less; (2) water utility property; (3) computer software (off-the-shelf); or (4) qualified leasehold property. The property generally must be purchased and placed in service during 2008. Thus, the original use of the property must begin with the taxpayer and must occur after December 31, 2007, and before January 1, 2009. The placed-in-service date is extended one year, through December 31, 2009, for property with a recovery period of 10 years or longer, for transportation property (tangible personal property used to transport people or property), and for certain aircraft. Bonus depreciation must be claimed for both regular tax and alternative minimum tax liability unless the taxpayer makes an election out.
The economic stimulus package will enable capital-incentive companies to write off a greater amount of their investments in business property. The goal of the bonus depreciation is to encourage business investment and boost the nation’s economy. If you have questions or to find out more how this may apply, the IEC encourages its members to seek the services of a tax professional.