Business Provisions of the Economic Stimulus Act of 2008

Unlike the economic stimulus payments that millions of individuals have already received, the tax benefits for businesses are not automatic; businesses must act to take advantage of the new provisions by purchasing qualifying property. The following are some details about these two key tax benefits:

Section 179 Expensing
In general, section 179 provides that, instead of depreciating property, a business with a sufficiently small amount of annual property purchases may choose to expense the cost of the property. For taxable years beginning in 2008, the Economic Stimulus Act increased the section 179 expensing limit to $250,000 allowing more property to be currently expensed. This is a 95 percent increase from the previous limitation of $128,000.

The Economic Stimulus Act also increased the total amount of qualifying property a taxpayer may purchase before the section 179 expensing limit begins to be reduced. Under the new law, the $250,000 deduction amount is reduced only when a business acquires more than $800,000 of qualifying property. Prior to changes made by the Economic Stimulus Act, the reduction began when a business acquired more than $510,000 of qualifying property.

Section 179 property includes:

• Machinery and equipment
• Furniture and fixtures
• Most storage facilities
• Single-purpose agricultural or horticultural structures
• Off-the-shelf computer software (like Sage MAS 90, MAS 200, MAS 500, SalesLogix or Abra)

Special Depreciation Allowance
Under the new Economic Stimulus Act, a taxpayer is also entitled to depreciate 50 percent of the adjusted basis (after subtracting any section 179 deduction taken on that property) of qualified property during the year the property is placed in service. For example, if the taxpayer purchased and placed in service in 2008 a single piece of property at a cost of $450,000 that qualified for section 179 expensing and the 50 percent special depreciation allowance, $250,000 of the cost could be immediately expensed (under section 179 ) and the remaining $200,000 of adjusted basis would be available for the 50 percent special depreciation allowance. The taxpayer would also be permitted to take regular depreciation on the remaining $100,000 of adjusted basis during that year. The types of property that qualify for the 50 percent special depreciation allowance are:

• Section 168 property with a recovery period of 20 years or less
• Off-the-shelf computer software (like Sage MAS 90, MAS 200, MAS 500, SalesLogix or Abra)
• Water utility property
• Qualified leasehold improvement property

To qualify for the 50 percent special depreciation allowance, a taxpayer must meet all of the following tests:

• The taxpayer must have acquired the property after December 31, 2007, and before Jan. 1, 2009
• The property must be placed in service before Jan. 1, 2009.
• The original use of the property must begin with the taxpayer after Dec. 31, 2007. In other words, the property must be “new” property.

Consult with Your Tax Advisor
Reminder: to take advantage of the 2008 tax incentives, your business equipment must be put in use by year-end. Each company should contact their tax advisor to learn about the specific impact to their business.