Bonus Depreciation and Increased Expensing Deductions Available Under New Stimulus Plan

The House and Senate Plans Both Include 50% Bonus Depreciation And Identical Increased Expensing Deductions

Under the new proposal, taxpayers who purchase equipment for their business would be entitled to an accelerated 50% bonus depreciation on new equipment purchases. The bills would require that the asset be placed in service before January 1, 2009.

• The House Bill would approve 50% bonus depreciation for property placed in service anytime in 2008.
• The Senate Bill provides 25% bonus first year depreciation in 2008 and an additional 25% bonus depreciation in the following year, and only applies to property placed in service after January 29, 2008.
  

Observation:

• Based on prior legislation of this type, the effective date will not begin later than January 30, 2008

Current law allows taxpayers to expense up to $128,000 of investments in new and used capital improvements provided the taxpayer does not invest more than $638,000 during the taxable year. In the new bill the expensing election will increase to $250,000 and the investment limitation will be phased out at $1,050,000.

• The House and Senate Bills both increase the expensing election for all 2008 purchases.
  

Only a general outline of the plan has been announced; none of the important details are included in the released information. However, it is likely that the new legislation will adopt the provisions of bonus depreciation included in the 2003 Tax Act. It's anticipated that normal depreciation rules such as the requirements that the property be placed in service and qualify for accelerated depreciate rules. The existing binding contract limitations may limit the availability of bonus depreciation in certain circumstances where equipment have been previously ordered.

Status as of 2/1/2008