Economic Stimulus Act of 2008 - Part 2

In addition to cash rebates (previously discussed), the Economic Stimulus Act of 2008 included a couple of business incentives - a more generous Section 179 deduction and bonus depreciation.

Most business owners are familiar with Section 179. Section 179 is an election in the Internal Revenue Code that allows you to elect to expense certain assets in the year purchased rather than to depreciate these assets over several years. In 2008, you can expense up to $250,000 under Section 179 as long as your total asset purchases don't exceed $800,000.  When asset purchases exceed $800,000, the $250,000 election amount begins to phase out on a dollar for dollar basis.  Previously the Section 179 deduction topped out at $128,000 of qualified assets if your total asset purchases for the year were less than $510,000. [We've come a long way, baby. During my first tax season out of school, you could only expense $5,000 of assets under Section 179.]

Caution: If you have a fiscal year, the increased Section 179 amounts due not become effective until your year begins in 2008.  If you have a June 30 fiscal year, the increased limits do not begin until July 1, 2008.

Also, bonus depreciation is back.  50% bonus depreciation is allowed on assets purchased in 2008. For example, if you purchased $10,000 of assets that don't qualify under Section 179, you can still deduct 50% of the assets cost plus normal depreciation on the other 50%.  Restated, If you purchased computers that are to be depreciated over 5 years and these computers cost $10,000, you can take first year depreciation of $7,000 ($5,000 bonus depreciation and $2,000 depreciation on the remaining cost).

As always, there are exceptions to the general rule and the tax laws may not work as you first expect.  If you are a client of Potts & Company and have questions, give us a call.

The IRS has posted detailed information concerning the cash rebates on its website. Click here.