Guest Author - Kate Woods
With all the hype over the Economic Stimulus Rebates for individuals the business provisions have been somewhat over-shadowed. There are two provisions that are beneficial to businesses. These benefits for businesses are not automatic like the individual rebates but options for businesses to consider regarding Section 179 and depreciation decisions. It would appear that the goal of these provisions is to entice business to make larger purchases for their businesses and thereby stimulate the economy.
The first provision relates to increases to the 2008 Section 179 expense for businesses to $250,000 for qualified section 179 property placed in service in tax years that begin in 2008. The previous maximum limitation was $128,000. This is a 95% increase. The total amount of qualifying property that may be purchased before the section 179 expense limitation begins to be reduced has been increased from $510,000 of qualifying property to $800,000. This means that if a business purchases $250,000 of qualifying fixed assets (equipment, furnishings, etc.) that instead of having to depreciate it over the useful life that they can choose to deduct the entire $250,000 in the year of purchase.
The maximum Section 179 expense limit for SUVís has not been changed and remains at $25,000. Perhaps they did not increase this amount because, letís face it, buying an SUV in these times when most people are appalled by the rising gas prices is probably not a decision one would make just to get a better tax break (unless itís a hybrid thatís really efficient and thereís a different tax break for them hybrids).
The second provision provides for depreciation changes. A 50% special depreciation allowance for property acquired and placed in service during 2008 is now available. The new law allows a taxpayer to depreciate 50% of the adjusted basis of qualified property placed in service during the year. The adjusted basis is the cost minus any section 179 deduction taken on the same property. This is similar to the bonus depreciation that was available for certain property placed in service before Jan 1, 2005. To qualify the property has to have been acquired after December 31, 2007 and before January 1, 2009. The property must be placed in service before January 1, 2009 or January 1, 2010 for certain transportation property and some property with long productions periods. The property must be new property when placed in service. The total depreciation deduction for a passenger vehicle prior to this act was $2,960. The maximum limit has now been increased to $10,960 for automobiles when the bonus depreciation allowance is claimed. The maximum limit for trucks and vans was $3,160 and is now increased to $11,160. My guess is the government is trying to stimulate purchases of vehicles with this increased tax benefit.
Itís important to realize that sometimes even when you qualify for higher Section 179 deductions and depreciation deductions that itís not the best choice for you to make the overall tax picture of your business so this is something that you should discuss with your tax advisor before you run right out and make big purchases to claim these big deductions. A little bit of tax planning can be very beneficial when it comes to making decisions about the timing of spending your money and claiming your available deductions.
Clearly one of the goals for increasing the section 179 and depreciation amounts was to help stimulate the economy by enticing businesses to purchase more property to take advantage of the tax deductions.
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