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50% Bonus Depreciation on New Equipment Purchased in 2008

Similar to the old bonus depreciation rules, the new law allows a bonus first-year depreciation of 50% of the adjusted basis of qualifying property placed in service after December 31, 2007, and before January 1, 2009.

To be considered qualifying, the property must be one of the following:

• Property with a MACRS life of 20 years or less
• Noncustom-made computer software
• A qualified leasehold improvement or
• A water utility property

And

• Purchased during 2008
• Placed in service during 2008
• The original use of the property must begin with the taxpayer after December 31, 2007

"Qualified property” doesn't include any property if:

1. The user of the property (as of the date on which the property is originally placed in service) or a person who is related to the user or to the taxpayer has a written binding contract in effect for the acquisition of that property at any time before January 1, 2008 or
2. In the case of property manufactured, constructed or produced for the user's or person's own use, the manufacture, construction or production of the property began at any time before January 1, 2008

As with the prior bonus depreciation, there is no depreciation adjustment for AMT purposes on assets in which 50% bonus depreciation is elected. These deductions can be claimed without the restrictive income limitations that apply to Section 179 expensing.

Taxpayers can opt out of bonus depreciation for 2008.

The first-year depreciation for passenger automobiles is increased by $8,000 if the passenger automobile is qualified property. The IRS has not set the 2008 passenger automobile limitations. However, the 2007 limitation was $3,060. If the limitation were to stay the same for 2008, the maximum depreciation allowed on a passenger automobile purchased and placed in service during 2008 would be $11,060.

Example: On June 1, 2008, ABC Company purchases a new asset for $100,000 with a five-year depreciable life. The bonus depreciation on the asset is $50,000. In addition, the remaining $50,000 would be depreciable as a five-year asset or $10,000 in depreciation for the first year. The total depreciation allowed in 2008 would be $60,000.

Questions on the Economic Stimulus Act of 2008? Contact Craig Maksymiak at 312-980-2977 or your Blackman Kallick representative at 312-207-1040.

Read our full article on the Economic Stimulus Act of 2008

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.