On Feb. 13, 2008 President Bush signed the Economic Stimulus Act (ESA), which temporarily reinstates the depreciation bonus and increases Sec. 179 expensing limits. 

These savings apply to all new equipment* purchased and placed in service before December 31, 2008. 

*The equipment must be depreciable under MACRS and have a depreciation recovery period of 20 years or less. The ESA also allows the use of the depreciation bonus for certain types of water utility property, software and leasehold improvements. Check with your tax professional.

Companies that buy new equipment in 2008 can depreciate 50 percent of the cost in the first year, plus the percentage of the remaining basis in the equipment that would ordinarily be depreciable under the Modified Accelerated Cost Recovery System (MACRS). For a $100,000 piece of equipment with a five-year MACRS life, the first year depreciation under the ESA would be $60,000: $50,000 depreciation bonus, plus 20 percent of the remaining $50,000 in basis.  To qualify, the new equipment must be acquired and placed in service by the taxpayer claiming the depreciation bonus before Jan. 1, 2009.

The ESA increased the expensing limits under Sec. 179 of the Internal Revenue Code for any taxable year beginning in 2008. For the 2008 tax year, companies can expense up to $250,000 as long as total purchases do not exceed $800,000. For each dollar over, the eligible expensing amount correspondingly drops by one dollar. Thus, companies that spend more than $1,050,000 on tangible personal property cannot take advantage of Sec. 179. (But they can still use the depreciation bonus.) Unlike the depreciation bonus, Sec. 179 expensing can be applied to both new and used equipment. While the depreciation bonus applies during the 2008 calendar year, the Sec. 179 increases apply to any tax year beginning in 2008.

Companies eligible for Sec. 179 can also combine it with the depreciation bonus for even bigger tax savings.

This information has been provided by Olson Technology, Inc. as a public service to equipment buyers. It should not be construed as tax advice or as a promise of potential tax savings or reduced tax liability. For more information about the depreciation bonus, contact your tax professional or visit the Internal Revenue Service Web site at www.irs.gov.

There has never been a more advantageous time to upgrade or expand your network than today.

Top of Page