Sunday, November 16, 2008

Bonus Depreciation for 2008 - What You Need to Know...

In February of this year President Bush signed the Economic Stimulus Act of 2008. Although this may be older news for some, it's important to revisit it now as time is running out for those contractors wishing to take advantage of its provisions as they relate to capital asset expenditures.

A significant piece of this Act deals with 50% Bonus Depreciation on qualified depreciable property (contact us if you have any questions regarding what qualifies). The Bonus Depreciation has no cap on it and the qualifying property cannot be ''previously owned'' (must be new and the taxpaying entity must be the original purchaser). As long as the property was purchased and put in service in calendar year 2008 and is qualifying property, half of it can be deducted immediately (the immediate expensing provisions discussed below applies first) with the balance subject to normal depreciation rules.

The allowance for immediate deductibility of qualifying equipment and other capital assets was raised to $250,000 for tax years beginning in 2008. If the total of the additions exceed $800,000, this allowance begins to be reduced. Also the luxury auto limitation was increased from $4,600 to $8,000.

While it's never a good idea to purchase capital assets merely to take advantage of these tax changes, it may make sense to accelerate purchases slated for the first part of 2009 into 2008 in order to do so. The cash flow required to make significant additions is greatly reduced by these provisions therefore making an earlier acquisition potentially attractive.

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