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Stimulus Package Has Temporary Rules for Expensing, Depreciation


If the tax rebate checks from the IRS to millions of American consumers to help pump up the economy weren’t enough for you, the Economic Stimulus Act of 2008 contained other favorable provisions that will benefit small business. It appears that the government wants to inspire businesses to spend freely, too.
But the time to act is now. Congress wanted to ensure that the legislation would stimulate the economy as quickly as possible, so these provisions come with expiration dates (as do so many these days).

Expensing Enhanced

Up to $250,000 of the cost of equipment or property purchased and put to work in the 2008 tax year can be deducted on a firm’s fiscal 2008 tax return. This is twice the amount that could be expensed in 2007.
The threshold for a deduction was raised to $800,000 from the former $512,000 limit. This means that if the cost of the qualified property is more than $800,000, the ability to deduct the full $250,000 begins to phase out dollar-for-dollar.
In order to qualify, the property must be newly purchased depreciable personal property and it must be used more than 50% for business purposes.

Depreciation Acceleration

Businesses that buy certain depreciable equipment, software, or qualified leasehold property can depreciate 50% of the asset’s basis during the first year, as long as it is placed in service (or construction begins) after December 31, 2007, but before December 31, 2009.
The slowing economy might be a concern, but the bright side is that favorable tax laws are more likely to be enacted during these times to encourage businesses to invest and prepare for the return of strong growth. Before you take any specific action, be sure to consult with your tax professional.

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