Sunday, March 9, 2008

Economic Stimulus Act of 2008

On February 13t, President Bush signed into law the Economic Stimulus Act of 2008 (“the Act”). The highlights of the tax effects of the Act on individuals and businesses are provided below.

Increase in 2008 Section 179 Expensing Election
Under the Act, all eligible businesses will be able to expense (rather than depreciate) up to $250,000 of qualifying property placed into service in tax years beginning in 2008 (pre-Act limit $128,000). The $250,000 maximum expense amount is reduced dollar for dollar by the amount of qualifying property in excess of $800,000 (pre-Act $510,000) placed in service for the tax year beginning in 2008. Qualifying property is generally depreciable tangible personal property, as well as off the shelf software, for which the original use commences with the taxpayer. The expensing election under the Act is limited, as under prior law, to the entire trade or business taxable income of the taxpayer calculated without the expensing election. Prior law expensing limits continue to apply for tax years beginning after 2008.

Bonus Depreciation for Assets Acquired and Placed in Service in 2008
The Act generally allows a bonus first year depreciation deduction equal to 50% of the cost of qualified property acquired and placed in service during calendar 2008 (including 2009 for certain aircraft and property with a long production period). The bonus depreciation is allowed for both regular tax and alternative minimum tax computations. The types of property eligible for bonus depreciation are similar to prior year versions of this law, including: 1) tangible personal property with a recovery period not exceeding 20 years; 2) purchased computer software; and 3) qualified leasehold improvement property.

Individual Tax Rebates
The focus of the Act in the media has been the rebates that will be paid to individual taxpayers. The rebates are targeted to be paid in May 2008 (but not before the taxpayer files their 2007 return), and will range from $300 to $600 for individual filers, and $600 to $1,200 for joint return filers, plus $300 per child under age 17. However, most higher income earners will not be
eligible for any rebate. The potential rebate is reduced by 5% of the taxpayer’s 2007 adjusted gross income that exceeds $75,000 for single taxpayers and $150,000 for joint filers. The Senate amendments to the related House bill extended the rebates to taxpayers whose only income consists of Social Security or veterans’ disabilty payments.

This article is a summary and is not intended as tax or legal advice. You should consult with your tax advisor to obtain specific advice with respect to your fact pattern.

IRS Circular 230 Notice: As required by Treasury Department regulations, we hereby inform you that any tax advice contained in this bulletin was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under federal state or local law, or (ii) promoting, marketing or recommending any transaction, plan or arrangement.