The Economic Stimulus Act of 2008 Creates Incentives For You To Invest In Equipment
President Bush signed the Economic Stimulus Act (ESA) of 2008 into law February of this year. Among the stimulus act components were significant incentives to encourage equipment purchasing in 2008.
NMC is providing the following information to our customers to briefly explain the significant changes in the Tax Code Section 179, for tax year 2008.
The 2008 Economic Stimulus Act increases the value of the Code Section 179 deduction for equipment or property purchased and placed into service during the 2008 tax year.
- Deduction limit is increased to $250,000
- Maximum investment limitation is increased to $800,000
- Special additional first year depreciation allowance of 50% on the remaining amount
Internal Revenue Code Section 179 provides incentives to business owners to invest
in qualified equipment or property by allowing businesses to deduct additional
depreciation of those investments in the first year, in addition to the Standard
Depreciation (MACRS) deduction. This increases the tax benefit the first year
equipment is acquired and placed into service.
A commercial taxpayer who owns qualified equipment for business purposes
may now be able to deduct up to $250,000 of the value of the equipment. They
may qualify for 50% bonus depreciation, in addition to the standard first-year
depreciation (MACRS) deduction on the remaining amount.
Qualified business assets include machinery, equipment, furniture, fixtures and offthe-
shelf software. For businesses that acquire more than $800,000 of qualified
business assets during the tax year, the Section 179 deduction decreases by $1 for
each additional dollar spent on qualified business assets.
By using the Section 179 deduction you can lower your tax payments, freeing up cash for additional equipment purchases or other business needs. Talk with your tax professional and NMC to take advantage of this tremendous opportunity.
Example 1
Equipment with a price of $400,000 and a useful life of 5 years
| A: |
Total eligible assets |
$400,000 |
| B: |
Section 179 deduction |
$250,000 |
| C: |
50% bonus depreciation
(a-b) x 50% |
$ 75,000 |
| D: |
1st Year depreciation (MACRS) |
$15,000 |
|
|
Total 1st year tax deduction
(b+c+d) |
$340,000 |
Example 2
Equipment with a price of $35,000 and a useful life of 5 years
| A: |
Total eligible assets |
$ 35,000 |
| B: |
Section 179 deduction |
$ 35,000 |
| C: |
50% bonus depreciation
(a-b) x 50% |
$ 0 |
| D: |
1st Year depreciation (MACRS) |
$ 0 |
|
|
Total 1st year tax deduction
(b+c+d) |
$ 35,000 |
Example 3
Equipment with a price of $850,000 and a useful life of 5 years
| A: |
Total eligible assets |
$850,000 |
| B: |
Section 179 deduction
($250,000 to $50,000 phase out for amount over $800,000) |
$200,000 |
| C: |
50% bonus depreciation
(a-b) x 50% |
$325,000 |
| D: |
1st Year depreciation (MACRS) |
$65,000 |
|
|
Total 1st year tax deduction
(b+c+d) |
$590,000 |
Depreciation Bonus at a Glance
Source: Associated Equipment Distributors
The Economic Stimulus Act (ESA) allows additional first-year depreciation of 50 percent of purchase cost
- Applies, among other things, to purchases of tangible personal property (including construction, mining, forestry, and agricultural equipment) with a MACRS recovery period of 20 years or less
- Equipment must be purchased and placed in service in 2008
- Equipment must be new
- Not applicable if a binding purchase contract existed prior to Jan. 1, 2008
- Allowed for both regular and alternative minimum tax purposes
- Discretionary - Taxpayer need not claim the depreciation bonus
- Depreciation bonus will expire at end of 2008
Sec. 179 Expensing At A Glance
- ESA increases Sec. 179 expensing limit to $250,000 and phase-out cap to $800,000
- Companies can expense up to $250,000 in purchases as long as they don't spend more than $800,000
- Expensing is phased-out for each dollar that purchases exceed $800,000
- Companies with total purchases of $1,050,000 cannot use Sec. 179
- New and used equipment is eligible for expensing
- Applies to tax years that start in 2008
- Can be combined with depreciation bonus
- Sec. 179 expensing levels will drop at end of 2008 (without ESA, the 2008 expensing amount would be $128,000 and the phase-out level would be $510,000)
