The Economic Stimulus Package of 2008

Written by Steven D. Beaucaire, MST
Vice President, Tax - Bedford Capital Consulting

The Economic Stimulus Act of 2008 passed through the House and Senate and now awaits the signature of the President. Congress hoped that quick action on this bill will give  the country a much needed boost to the economy. This stimulus package will offer tax dollars back in the hands of individual taxpayer and significant advantages to businesses. The key elements of the bill include rebates for taxpayers and for some who pay no tax, an increase in the government insured loans in the housing market, an increase to the first year expensing under § 179, and hallelujah – bonus depreciation is back!


Provisions for Business
It is a great day for businesses with the return of bonus depreciation. Bonus depreciation has been set at the 50% rate, and as it appears now, the old bonus depreciation rules will apply. The Economic Stimulus Act of 2008 provides that:

1. In order to qualify, the original use of the property must begin with the
    current taxpayer.

2. The property must be purchased and placed in service in 2008. The
    “binding contract” rules do apply to the placed-in-service dates. In other
    words, if the property is purchase or constructed pursuant to a binding
    contract before January 1, 2008, it is not eligible for bonus depreciation.

3. The property must have a General Depreciation System (GDS) life of 20
     years or less.

4. There is no adjustment to Alternative Minimum Tax (AMT) depreciation, as
     you must use the bonus for both GDS and AMT.

5. Qualifying property includes water utility property.

6. It includes computer software other than software covered by § 197
    (purchased as part of a business).

7. It includes Qualified Leasehold Improvements (QLI), which is a reversion
    to the treatment of QLI placed in service between September 11, 2001 and
    October 22, 2004, where the QLI is depreciated using a 39-year life after
    the bonus depreciation is taken.

8. It does not include Qualified Restaurant Improvements.

9. Property required to be depreciated under the Alternative Depreciation
    System (ADS) is specifically excluded from bonus depreciation.


Regarding the change in § 179, the increase to the deduction nearly doubles the maximum amount that businesses can write off under § 179, from $128,000 to $250,000 during 2008. The Economic Stimulus Act of 2008 also raises the phase-out threshold from $510,000 to $800,000 for 2008. That means once a taxpayer has added more than $1,050,000 in qualifying property, they have no § 179 deduction. No other changes were made to the existing rules applicable to § 179.

The Economic Stimulus Act of 2008 should soon give many Americans something to celebrate about, and out of all of the changes, bonus depreciation offers the greatest boom in the business world. Keeping an eye on changes in the tax law will help the businesses make decisions that optimize tax savings, and the best way to maximize bonus depreciation it is to have a cost segregation study done by a professional firm of engineers and tax experts.