IRS Outlines Impact Of 2008 Economic Stimulus Act For Businesses

by Mike Godfrey, Tax-News.com, Washington

22 February 2008

The IRS on Thursday provided detail with regard to the impact of the Economic Stimulus Act of 2008 on businesses.

Incentives for the business community provided for under the new legislation include a special 50% depreciation allowance for 2008 purchases, and an increase in the small business expensing limitation for tax years beginning in 2008.

Commenting on the 50% Special Depreciation Allowance, the IRS explained that:

"Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property over several years. It is an annual allowance for the wear and tear, deterioration or obsolescence of the property."

"Under the new law, a taxpayer is entitled to depreciate 50% of the adjusted basis of certain qualified property during the year that the property is placed in service. This is similar to the special depreciation allowance was previously available for certain property placed in service generally before Jan. 1, 2005, often referred to as “bonus depreciation.”

"To qualify for the 50% special depreciation allowance under the new law, the property must be placed in service after Dec. 31, 2007, but generally before Jan. 1, 2009."

To reflect the new 50-percent special depreciation allowance, the IRS revealed that it is developing a new version of the depreciation and amortization form for fiscal year filers. The new form will be designated as the 2007 Form 4562-FY.

Commenting with regard to Section 179 Expensing, meanwhile, the IRS explained that:

"In general, a qualifying taxpayer can elect to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property, after the relevant section in the Internal Revenue Code."

"Under the new law, a qualifying business can expense up to USD250,000 of section 179 property purchased by the taxpayer in a tax year beginning in 2008. Absent this legislation, the 2008 expensing limit for section 179 property would have been USD128,000."

It concluded: "The USD250,000 amount provided under the new law is reduced if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds USD800,000 limit of USD25,000."

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