The Economic Stimulus Act of 2008 signed into law by President Bush on February 13, 2008 includes two significant business related tax Incentives that may lower your cost of investing in new equipment and spur new orders from customers. Increased expensing limits for small businesses and a 50 percent “bonus” depreciation provision will provide a benefit to businesses of all sizes. In fact, small businesses that qualify for the increased expensing can also take advantage of the
bonus depreciation. The two provisions along with examples are briefly
described below.

Expanded Expensing (Sec. 179) for Small Businesses
Companies that purchase less than $800,000 of capital assets in a year now can expense (i.e., deduct currently) the first $250,000 of capital investment, effective for purchases made in 2008 (the prior limits for 2008 were $128,000 and $510,000 respectively).

Accelerated Depreciation for All Businesses
The new law also includes a new 50 percent expensing allowance (also
known as bonus or accelerated depreciation) that generally applies to
capital equipment purchased and placed in service during 2008. This
incentive is available to all companies, regardless of the size of their
investment. Under this provision, companies are eligible for a “bonus”
first-year depreciation totaling 50 percent of the cost of the investment and can depreciate the remaining basis of the asset under the regular depreciation rules. Smaller companies get even more of a “bonus.” As described above, they can first take advantage of expensing and then also use the 50 percent expensing allowance.

QUALIFIED PROPERTY
In order for property to qualify for the bonus depreciation deduction, it
must meet the following requirements. First, the property must be one of the following types of property: (1) property to which the general rules of MACRS apply having a recovery period of 20 years or less, (2) water utility property, (3) computer software other than computer software recovered under section 197, or (4) be qualified leasehold improvement property. Second, the original use of the property must commence with the taxpayer after December 31, 2007. Original use means the first use to which the property is put by anyone. Third, the property must be purchased within the applicable time period (after December 31, 2007 and before January 1, 2009). Finally, the property must be placed in service before December 31, 2007 and before January 1, 2009. With respect to self-constructed property, an extended placed-in-service date is allowed if the production period exceeds two years or has an estimated production period exceeding one year and a cost exceeding $1 million.

This article does not constitute tax, legal, or other advice from Deloitte
Tax LLP, which assumes no responsibility with respect to assessing or
advising the reader as to tax, legal, or other consequences arising from
the reader’s particular situation. Economic Stimulus Package Includes
Powerful Tax Incentives for Investment
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