Equipment Gets Faster Write-Offs Under Tax Economic Stimulus Package

Although the Economic Stimulus Act of 2008 is best (and most expensively) known for providing tax rebates for lower and middle income persons, businesses also received some tax benefits in terms of accelerated write-offs for new equipment purchases. Here are the details.

In lieu of depreciation, small business can deduct (i.e., expense) limited amounts of the cost of most property purchased. In 2008, before the new law, businesses could deduct up to $128,000. If more than $510,000 of property is purchased, the opportunity to expense the equipment is reduced dollar for dollar; consequently, businesses purchasing more than $639,000 ($510,000 pus $128,000) get no election to expense their equipment purchases.

These limits were increased under the stimulus act. For 2008, the expensing limit is now $250,000, with the phase-out beginning at $800,000.

Generally, any equipment that is not expensed under Section 179 (see above) is deducted over a number of years, with the number of years determined by the type of asset acquired. Under the stimulus act, a business can depreciate an additional 25% of the cost of the asset purchased in 2008 in both 2008 and 2009 (totaling 50% bonus depreciation). The additional depreciation is also allowed under the Alternative Minimum Tax (AMT). Equipment eligible for this bonus depreciation includes tangible property with a depreciable life not exceeding 20 years, computer software, and leasehold improvements.