Law & Order


The economic stimulus measure passed by Congress and to be signed into law by President Bush includes several important business tax breaks. The new law includes both a temporary increase in the first-year direct-expensing allowance and a bonus depreciation deduction of 50% for 2008. The direct expensing allowance increases to $250,000 from the current level of $128,000. The new law also provides an increase in the phase-out cap based on total equipment purchases in a year, rising to $800,000 from the current $510,000. 

Here is an example on how the tax breaks work:

  • The direct-expensing allowance is applied first. If you have a $450,000 machinery purchase, the amount written off in the first year would be $250,000. 
  • The 50% bonus depreciation is then applied to the remainder basis of $200,000. That means another $100,000 can be written off in for 2008. 
  • Then the regular first-year depreciation allowance is taken based on the remaining $100,000 basis. That amount depends on the class life of the asset and a few other technicalities, but for this example we will use a five-year life and a straight line deduction of another 20% , so the taxpayer can expense another $20,000. 
  • Final result: The taxpayer is able to expense $370,000 of the $450,000 in tax year 2008.

In addition to the business incentives, most taxpayers will receive checks of up to $600 for individuals or $1,200 for married couples. The amounts will be phased-out at a rate of 5% for each $1,000 in earnings above the cap incomes of $75,000 for individuals and $150,000 for married couples. Under this formula, the rebates will be completely phased out at $87,000 for individuals and $174,000 for joint filers without children. Checks are expected to be mailed between May and July.

For more information, contact Stuart Gosswein: