During 2008 the Economic Stimulus and Emergency Economic Stabilization Acts were signed into law. The Acts include a host of tax benefits and other changes that will impact businesses. The following is a summary of changes that will affect most businesses.

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Section 179 Expensing: In general, section 179 provides that, instead of depreciating property, a business with a sufficiently small amount of annual property purchases may choose to expense the cost of the property. The Economic Stimulus Act adds the following tax benefits:

• Increases the maximum section 179 expense deduction to $250,000 for qualified section 179 property that is placed in service in tax years that begin in 2008. This is a 95 percent increase from the previous limitation of $128,000.


• Increases the total amount of qualifying property a taxpayer may purchase before the section 179 expensing limit begins to be reduced. Under the new law, the $250,000 deduction amount is reduced only when a business acquires more than $800,000 of qualifying property. Prior to changes made by the Economic Stimulus Act, the reduction began when a business acquired more than $510,000 of qualifying property.


• It’s important to note that the new law does not alter the section 179 expense limit for sport utility vehicles, which remains at $25,000.

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Special Depreciation Allowance “Bonus Depreciation”: The Economic Stimulus Act also provides a 50 percent special depreciation allowance for property acquired and placed in service during 2008.

• Under the new law, a taxpayer is entitled to depreciate 50 percent of the adjusted basis (after subtracting any section 179 deduction taken on that property) of qualified property during the year the property is placed in service.
• The types of property that qualify for the 50 percent special depreciation allowance are most tangible property with a recovery period of 20 years or less, off-the-shelf computer software, water utility property and qualified leasehold improvement property.
• To qualify for the 50 percent special depreciation allowance, a taxpayer must meet all of the following tests:


• The taxpayer must have acquired the property after December 31, 2007, and before Jan. 1, 2009. If a binding contract to acquire the property existed before Jan. 1, 2008, the property does not qualify for the special depreciation allowance.
• The property must be placed in service before Jan. 1, 2009 (before Jan. 1, 2010, for certain transportation property and certain property with a long productions period).
• The original use of the property must begin with the taxpayer after Dec. 31, 2007. In other words, the property must be “new” property.

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New Depreciation Limits on Business Vehicles: Prior to the enactment of the Economic Stimulus Act the total depreciation amount (including the section 179 deduction) a business could deduct for a passenger automobile was $2,960 and $3,160 for a truck or van. The Economic Stimulus Act increased this limitation by $8,000. Therefore, the maximum limit is increased to $10,960 for automobiles and $11,160 for trucks and vans, for which the special bonus depreciation allowance is claimed.

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15-Year Writeoff for Qualified Leasehold Improvements and Qualified Restaurant Property Extended for Two Years: In general, qualified leasehold improvement property is an interior improvement to a building that qualifies for bonus first-year depreciation. Qualified restaurant property is any Code Sec. 1250 property which is an improvement to a building if the improvement is placed in service more than three years after the date the building was first placed in service, and more than 50% of the building's square footage is devoted to preparation of, and seating for on-premises consumption of, prepared meals. The Emergency Economic Stabilization Act continues to allow qualified leasehold improvements and qualified restaurant improvements placed in service through December 31, 2009 to be written off over 15 years (instead of 39 years) via straight line.

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Additional FUTA Surtax Is Extended Through 2009: The Federal Unemployment Tax Act (FUTA) tax was imposed at a rate of 6.2% through 2008 (the total of the permanent 6% tax rate, and a temporary 0.2% surtax rate), and 6.0% for calendar year 2009 and later years. The Emergency Economic Stabilization Act provides that the 6.2% FUTA tax rate continues to apply through 2009, and the 6.0% rate applies for calendar year 2010 and later years.

The preceding has only highlighted tax provisions in the Economic Stimulus and Emergency Economic Stabilization Acts that will affect most businesses. If you have any questions or would like more information on the Economic Stimulus or Emergency Economic Stabilization Acts and how they will affect you, please contact us at your convenience.

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