This is Jean Wetzler.
I'm talking with Stephanie Harrison-Colbert from the IRS Small Business/Self-Employed division about the Economic Stimulus Act of 2008.
Stephanie, this legislation delivers payments to individuals, but it also contains some important business provisions.
One is Section 179 expensing.
The other is 50% Special Depreciation, sometimes called Bonus Depreciation.
Briefly, what is depreciation?
"Depreciation" is deducting part of the cost or other basis of property each year over several years.
It's an annual allowance for wear and tear or deterioration and applies to larger business assets, such as equipment, tractors, computers, and so forth.
What, then, is 50% Special Depreciation?
The 50% Special Depreciation is for new, tangible assets purchased and placed into service in 2008.
This is new this year for most areas of the country.
For these assets, a taxpayer is entitled to depreciate 50% of the cost or other basis during the year the asset is placed into service.
The remaining cost or other basis will be depreciated over the normal life of the asset.
Can 50% Special Depreciation be used along with other types of depreciation?
An asset could qualify for up to three different types of depreciation at the same time -- Section 179 Depreciation, 50% Special Depreciation, and a regular depreciation method, such as MACRS, in the year the asset is placed into service.
MACRS, M-A-C-R-S, stands for Modified Accelerated Cost Recovery System.
It's the depreciation method for certain categories of assets.
Can you give us an example of how a taxpayer could use different types of depreciation together?
Let's say a small business owner paid $400,000 for a qualifying asset - equipment, for instance - and placed it into service in 2008.
First, he applies Section 179 Depreciation provision to deduct the new maximum 179 Depreciation deduction of $250,000.
That leaves $150,000 that hasn't yet been depreciated.
Next, he takes the remaining $150,000 and applies the 50% Special Depreciation for an additional deduction of $75,000.
That leaves the other 50%, or $75,000, to which he can apply MACRS.
If the asset is a 5-year asset, he will be able to deduct 20% of the remaining $75,000, cost or basis, for an additional $15,000 deduction.
Using all of those tax provisions will produce a $340,000 deduction in 2008 for an asset that costs $400,000.
That's really something for a business to consider.
Where can small business owners learn more?
I suggest talking to your tax professionals about how you can best take advantage of the tax provisions, depending on your circumstances.
Our Web site, IRS.gov, is the best source of Economic Stimulus information from the IRS.
Look for the "stimulus payment" graphic on our homepage, then scroll down to find information about the business provisions.
As further guidance is issued, we'll be updating our Web site, so check back frequently.
Thank you, Stephanie.
I've been talking with Stephanie Harrison-Colbert of the IRS.
This is Jean Wetzler.
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