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New law provides tax break for buying business equipment

It's Your Money

Posted: May 2, 2008 1:23 a.m.
Updated: July 2, 2008 5:03 a.m.
Are you thinking of buying business equipment this year? If so, you'll be happy to know the Economic
Stimulus Act of 2008 includes changes to federal tax depreciation rules that can save money on your return.

The IRS announced on April 11 that it will issue guidance for businesses on how the special 50 percent
depreciation allowance that was included in the Economic Stimulus Act of 2008 can be used to make
capital investments this year.

Under the new law there is a significant tax incentive for businesses to make capital investments by adding a special 50 percent depreciation allowance for qualifying purchases. This special "bonus depreciation" allowance is available to all businesses and applies to most types of tangible personal property and computer software acquired and placed in service in 2008. It allows taxpayers to deduct 50 percent of the cost of qualifying property in addition to the regular depreciation allowance that is normally available.

Here's a summary.

* Business vehicles purchased and placed in service in 2008. The total depreciation deduction (including the section 179 deduction) you can take for a passenger automobile $2,960 ($10,960 with the special
depreciation allowances). The maximum deduction you can take for a truck or van is $3,160 ($11,160 with
the special depreciation allowance). In some cases it may be more advantages to use the mileage rate.

The standard mileage rate for the cost of operating your car for business in 2008 is 50 cents per mile. This
amount is an increase from 2007 rate of 48 cents per mile.

* Section 179. Under the new law, you can expense up to $250,000 of qualifying assets immediately instead of having to spread depreciation deductions over several years. Prior to the change, the limit was
$128,000. The limit is reduced by the amount by which the cost of the section 179 property exceeds $800,000.

The Stimulus Act also raises the dollar amount of the Section 179 phase-out. That means you can buy more assets - and still claim a full deduction. The phase-out now starts at $800,000, up from $510,000.

The increased Section 179 limits are available only to tax years beginning in 2008, and apply to new and
pre-owned property that you use in your business.

* Bonus depreciation. Along with the higher Section 179 expensing, the new rules offer a bonus: A special
depreciation deduction of 50 percent of the cost of new business assets that you buy and place in service
during 2008.

Property placed in service and disposed of in the same year does not qualify for this bonus.

Julie M. Sturgeon is a Certified Public Accountant in Valencia, specializing in individual and business tax issues. "It's Your Money" appears Thursdays and rotates between a handful of the valley's financial professionals. Her column represents her own views, and not necessarily those of The Signal.


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