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Stimulus & Response
by Jeff Brandenburg

Media attention to the recently passed Economic Stimulus Act of 2008 has been tremendous. Talk among individuals is about the amount of the rebates, when the checks will arrive, and how best to spend the windfall. The hope is that this quick injection of cash will pull the economy out of what many believe to be a recession.

Less universal, but no less important to stimulating the economy, are the $44.8 billion in business tax incentives included in the legislation. As the second prong of a two-pronged, $152 billion package, these incentives will act as a powerful motivation for businesses to upgrade and purchase new equipment in the coming year, create jobs, and return a measure of prosperity to a less-than-cheerful economic outlook.

The tax professionals at Clifton Gunderson have been monitoring the Economic Stimulus Act as it has developed, giving us insight into the most important features and benefits for our clients. Following is a review of those features and what they might mean to you and your business.
For businesses, the stimulus act provides tax relief in two main tax incentives:

Enhanced Expensing

The new law increases the amount of deductive IRC Section 179 expensing for 2008 to its highest level ever ($250,000), while increasing the threshold for reducing the deduction to $800,000. It applies to property purchased and placed into service in any taxable year beginning in 2008. Before the change, businesses in 2008 could only expense up to $128,000 of the cost of depreciable tangible property used in the business.

Temporary Bonus Depreciation

Qualifying taxpayers can take advantage of a 50 percent, first-year bonus depreciation of the adjusted basis of qualifying property. To be eligible for the bonus, the property must be:

  • Eligible for the modified accelerated cost recovery system (MACRS) with a 20-year or less depreciation period,
  • Water utility property,
  • Off-the-shelf computer software, or
  • Qualified leasehold property.

Generally, the property must be purchased and placed into service after Dec. 31, 2007, and before Jan. 1, 2009.

The new law also raises the “luxury” auto first-year depreciation cap to $8,000 for a qualifying vehicle.

Congress has utilized bonus depreciation in the past to encourage business investment and jump-start our economy. It was used after the terrorist attacks of 2001, but generally, outside of a few exceptions, has not been available for property acquired after 2004. Several states follow federal legislation as a basis for their tax code, so these business incentives will create state tax savings in addition to the federal tax savings. However, when bonus depreciation was enacted in 2001, several states passed legislation to disallow the bonus depreciation deduction for state income tax purposes. We will need to monitor state legislation to see if any states pursue legislation that disallows these business incentives for state income tax purposes.

A Season to Remember

Whether your income qualifies you for a rebate or excludes you, or your business is in a position to benefit from more favorable expensing and depreciation, the Economic Stimulus Act of 2008 will make the 2007-08 tax season one to remember. Only time will tell if the program has any lasting effect on our economic outlook.

For regular updates on tax news via e-mail, subscribe to Tax News Wire at www.cliftoncpa.com (click on Publications). For more on these and other tax issues, contact your local Clifton Gunderson office or call 1-888-CPA FIRM.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by Clifton Gunderson LLP to the reader. The reader is also cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Clifton Gunderson or other tax professional prior to taking any action based upon this information. Clifton Gunderson LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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