New business incentives for 2008

The Economic Stimulus Act of 2008 passed earlier this year made three major changes to the way businesses are allowed to write-off, or depreciate, equipment and vehicle purchases.

First, the Act increases the Section 179 special allowance for immediate write-off of business equipment & work vehicles from $128,000 to $250,000 for 2008. Normal depreciation rules allow a business to write-off the purchase price of business assets over a 5 or 7 year period. However, a special allowance in Section 179 of the IRS code allows most small businesses to write-off the total purchase price of business assets up to a pre-set limit each year. The new law allows small businesses to immediately write-off $250,000 of equipment purchases, almost twice the amount under the old law. This write-off is generally reduced, and possibly eliminated, if a business acquires more than a pre-set upper threshold amount of new assets during the year. But the Act allows the full $250,000 write-off as long as a business does not acquire more than $800,000 an increase of $290,000 to this upper threshold.

Second, the Act allows businesses to elect a 50% "bonus" write-off for qualifying assets purchased in 2008. This "bonus" write-off is similar to the write-off provisions passed shortly after September 11, 2001 which expired at the end of 2004. The new law allows businesses to write-off 50% of the purchase price of new business assets purchased before January 1, 2009. After taking the "bonus" depreciation, businesses are allowed to take normal write-offs on the remaining 50% of the purchase price, even the special Section 179 write-off. By combining the 50% "bonus" write-off with the Section 179 write-off, most small businesses should be able to write-off the entire purchase price of most equipment and vehicle purchases made during the 2008 tax year.

Third, the Act increases the first-year write-off limits for passenger vehicles used in a business by $8,000 to a total of up to $11,160. This limitation applies to vehicles that do not qualify under the other write-off provisions and includes most passenger vehicles that are used at least 50% of the time for business purposes. Ii does not apply to work vehicles such as trucks and vans, nor does it apply to any vehicle with a GVW greater than 6000 lbs. that is used at least 50% of the time for business purposes.