Life Support - Tax Facts
Economic Stimulus Act: Take Advantage of Business Tax Breaks to Help Plan for 2008 Taxes
A Tax Fact from The Tax Institute at H&R Block
It's Not Just For Individuals
In addition to providing Tax Rebate payments to individuals, the Economic Stimulus Act of 2008 provides enhanced expensing and bonus depreciation provisions for businesses buying assets, such as equipment, tractors, computers, etc., and placing the assets into service in 2008. Specifically, the Act increased section 179 depreciation limits AND added 50 percent bonus depreciation for assets placed into service in 2008.
Enhanced Business Expensing - Section 179
In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write-off the cost of these expenses in the year of acquisition instead of recovering these costs over time through depreciation (frequently referred to as the section 179 deduction, after the relevant section in the Internal Revenue Code).
For tax year 2008, the section 179 deduction is increased to $250,000, and phaseout starts at $800,000 of qualifying property placed in service. Prior to the new provisions, the 2008 amounts were $128,000 and $510,000 respectively.
The new law does NOT alter the section 179 limitation imposed on sports utility vehicles, which have an expense limit of $25,000.
50 Percent Special Depreciation Allowance
Depreciation is an income tax deduction that allows a taxpayer to recover the cost of property over a predetermined period of years.
The Economic Stimulus Act of 2008 allows a trade or business to write off 50 percent of the cost of qualifying assets in 2008 in addition to the regular depreciation allowance, IF the assets are acquired and placed into service in 2008 (or fiscal years beginning after December 31, 2007).
Qualifying property is generally defined the same as under earlier bonus depreciation provisions. It must satisfy four requirements:
Type of property.
The property must be MACRS property with a recovery period of 20 years or less, water utility property, computer software, or qualified leasehold improvement property. Computers and other office equipment, machinery, and furniture are all qualifying property.
Original use.
The original use of the property must begin with the taxpayer after December 31, 2007. "Original use" means that the property must be new property rather than "used" property when it is first placed in service by the taxpayer.
Acquisition.
Generally, the property must be acquired by the taxpayer after December 31, 2007, and before January 1, 2009, and no written binding contract to acquire the property may be in effect for the asset before January 1, 2008.
Placed in service.
The property must be placed in service by the taxpayer before January 1, 2009. There are exceptions for certain long production and aircraft property.
New Depreciation Limits on Business Vehicles
Generally, the depreciation deduction a business can take for a passenger vehicle placed into service in 2008 is $2,960. However, if the bonus depreciation requirements are met, the deduction is increased by an additional $8,000 to $10,960. For trucks and vans used in business and first placed into service in 2008, the maximum deduction that can be taken is $3,160 - $11,160 if the special bonus depreciation allowance applies. Act now. All of these provisions expire at the end of 2008.
This Tax Fact is brought to you by The Tax Institute at H&R Block.
To view other helpful tax information or listen to our Tax Fact podcasts, visit www.digits.hrblock.com
As always...everyone's tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.
This Tax Fact is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties.
A Tax Fact from The Tax Institute at H&R Block
It's Not Just For Individuals
In addition to providing Tax Rebate payments to individuals, the Economic Stimulus Act of 2008 provides enhanced expensing and bonus depreciation provisions for businesses buying assets, such as equipment, tractors, computers, etc., and placing the assets into service in 2008. Specifically, the Act increased section 179 depreciation limits AND added 50 percent bonus depreciation for assets placed into service in 2008.
Enhanced Business Expensing - Section 179
In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write-off the cost of these expenses in the year of acquisition instead of recovering these costs over time through depreciation (frequently referred to as the section 179 deduction, after the relevant section in the Internal Revenue Code).
For tax year 2008, the section 179 deduction is increased to $250,000, and phaseout starts at $800,000 of qualifying property placed in service. Prior to the new provisions, the 2008 amounts were $128,000 and $510,000 respectively.
The new law does NOT alter the section 179 limitation imposed on sports utility vehicles, which have an expense limit of $25,000.
50 Percent Special Depreciation Allowance
Depreciation is an income tax deduction that allows a taxpayer to recover the cost of property over a predetermined period of years.
The Economic Stimulus Act of 2008 allows a trade or business to write off 50 percent of the cost of qualifying assets in 2008 in addition to the regular depreciation allowance, IF the assets are acquired and placed into service in 2008 (or fiscal years beginning after December 31, 2007).
Qualifying property is generally defined the same as under earlier bonus depreciation provisions. It must satisfy four requirements:
Type of property.
The property must be MACRS property with a recovery period of 20 years or less, water utility property, computer software, or qualified leasehold improvement property. Computers and other office equipment, machinery, and furniture are all qualifying property.
Original use.
The original use of the property must begin with the taxpayer after December 31, 2007. "Original use" means that the property must be new property rather than "used" property when it is first placed in service by the taxpayer.
Acquisition.
Generally, the property must be acquired by the taxpayer after December 31, 2007, and before January 1, 2009, and no written binding contract to acquire the property may be in effect for the asset before January 1, 2008.
Placed in service.
The property must be placed in service by the taxpayer before January 1, 2009. There are exceptions for certain long production and aircraft property.
New Depreciation Limits on Business Vehicles
Generally, the depreciation deduction a business can take for a passenger vehicle placed into service in 2008 is $2,960. However, if the bonus depreciation requirements are met, the deduction is increased by an additional $8,000 to $10,960. For trucks and vans used in business and first placed into service in 2008, the maximum deduction that can be taken is $3,160 - $11,160 if the special bonus depreciation allowance applies. Act now. All of these provisions expire at the end of 2008.
This Tax Fact is brought to you by The Tax Institute at H&R Block.
To view other helpful tax information or listen to our Tax Fact podcasts, visit www.digits.hrblock.com
As always...everyone's tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.
This Tax Fact is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties.
