The Economic Stimulus Act of 2008 provides incentives to businesses to make purchases they may have otherwise put off another year. The incentives include a 50% depreciation allowance for 2008 purchases and an increase in the small business expensing limitation for tax years beginning in 2008.
The National Association of Wholesaler-Distributor's Jade West said that the association "worked extensively for it," and that though the act may not significantly change the plans of larger businesses who had planned to make capital purchases anyway, it may change the plans of smaller businesses who want to take advantage of the incentives.
Here are the details per the IRS and NAW:
50% Depreciation Allowance: Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property over several years. It is an annual allowance for the wear and tear, deterioration or obsolescence of the property.
The new law provides 50% bonus depreciation for qualified property. The eligible property will be the same as what was covered in previous bonus depreciation measures, and must be new and placed into service in calendar year 2008. This is available to businesses of any size.
Increase in Small Business Expensing: In general, a qualifying taxpayer can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property.
The legislation increases first-year expensing for small businesses for new machinery and equipment bought in calendar year 2008. The expensing allowance for 2008 goes up from $128,000 to $250,000, and the top limit on the cost of investment increases from $510,000 to $750,000.
