Small Businesses Benefit from 2008 Economic Stimulus Act Depreciation Provisions

Businesses that have bought assets – or are planning to do so – in 2008 can benefit from the same legislation that is delivering payments to individuals this year.

The Economic Stimulus Act of 2008 increased the maximum amount for depreciation under section 179 of the federal tax code from $128,000 to $250,000 for 2008. It also raised the section 179 phase-out limit, formerly $510,000 for this year, to $800,000. Section 179 depreciation provides a way for businesses to recover quickly some of the costs of certain property purchases, such as equipment.

The law also reinstates 50 percent special depreciation, also known as bonus depreciation, for much of the country. This special depreciation entitles taxpayers to depreciate 50 percent of the cost or other basis during the year for an asset placed into service in 2008 and depreciates the remaining cost or basis over the asset’s normal life.

Some states do not follow the special depreciation rules and the tax provisions’ most effective use will depend on taxpayers’ circumstances. Small businesses should consult their tax advisors.

The Economic Stimulus Payments Information Center on the IRS’s Web site at: http://www.irs.gov/newsroom/article/0,,id=177937,00.html is the best source of Economic Stimulus information from the IRS. Or look for the Stimulus Payment graphic on home page of IRS.gov, click on “Rebate Payment Questions”, and then scroll down for “Information for Businesses”. As guidance is issued, the Web site will be updated, so check back frequently.

To get the latest IRS business information, go to IRS.gov at http://www.irs.gov/businesses/small/article/0,,id=154825,00.html to start a free subscription to e-News for Small Businesses.