When most of us think of the Economic Stimulus Act of 2008, we think of those checks we got in the mail. But for businesses there’s more to this important tax legislation. If you’ve got extra cash flow and/or the need to decrease your taxable income for 2008, make sure you take advantage of the temporary increase in Section 179 expensing for certain depreciable assets.
What’s Section 179 Depreciation?
For tax purposes, most major purchases cannot be expensed in full when you buy them. Instead, the deduction must be taken over time as depreciation. Section 179 allows taxpayers to accelerate the expensing of these assets, which in effect means that many new big ticket items can create a large tax advantage in the year of acquisition.
The Economic Stimulus Act of 2008 increases the limits on this depreciation from $128,000 and $510,000 to $250,000 and $800,000, respectively for taxable years beginning in 2008. Those are huge increases which could really affect your tax bill.
Assets You Can and Cannot Expense Under Section 179
Of course we’re dealing with tax code here so there are plenty of limitations and phase outs, but generally speaking, assets that may be written off in the tax year of purchase include:
- Machinery and equipment (special rules for cars)
- Furniture and fixtures
- Most storage facilities
- Single-purpose agricultural or horticultural structures
- Off-the-shelf computer software
Ineligible property includes:
- Buildings and their structural components
- Income-producing property (investment or rental property)
- Property held by an estate or trust
- Property acquired by gift or inheritance
- Property used in a passive activity
- Property purchased from related parties
- Property used outside of the United States
Talk to a tax professional to determine the best strategy for your particular situation.
