Economic Stimulus Act (ESA) of 2008 -- and Its Retroactive Extension
|
|
|
|
Economic Stimulus Act (ESA) of 2008 -- and Its Retroactive Extension
The critical provision involves "bonus
depreciation."
A short overview of the key provision is provided below, followed by a set of links to more detailed information. The reader is cautioned to refer to the tax code and/or a tax specialist when faced with these and other tax treatment issues.
Bonus Depreciation
Under the 2008 Act businesses are allowed to take an additional first-year depreciation deduction, commonly known as "bonus depreciation," equal to 50 percent of the original "adjusted (depreciable) basis" – usually the fully installed cost – of qualified property. Property eligible for this treatment includes property to which MACRS depreciation applies with a recovery period of 20 years or less. Certain types of water utility property, software, and leasehold improvements also qualify for bonus depreciation. Property must generally be purchased and placed in service in 2008. The bonus depreciation is allowed for both the regular tax and the alternative minimum tax (AMT).
In addition, the business is entitled to "normal" first-year depreciation. However, the depreciable basis of the property and the regular depreciation allowances are adjusted to reflect the additional first-year depreciation deduction. And, finally, a taxpayer may elect out of the 50 percent bonus depreciation by asset class and be subject to "normal" tax depreciation on the original "adjusted (depreciable) basis."EXAMPLE (with 50-percent bonus depreciation): On September 1, 2008, a calendar-year reporting business bought and placed in service a $100,000 five-year property class piece of equipment. The business may claim a first-year (2008) depreciation allowance of $60,000 -- i.e., a $50,000 bonus depreciation ($100,000 times 50%) plus a $10,000 normal first-year MACRS depreciation calculated on the new adjusted basis ([$100,000 minus $50,000] times 20%). In the second year (2009), the MACRS depreciation would be $16,000 ([$100,000 minus $50,000] times 32%). And, so on.
In the above example, the "effective" depreciation percentage for the first year is 60% [($50,000 bonus depreciation plus $10,000 normal first-year depreciation) divided by the $100,000 original adjusted basis]. In the second year, the "effective" depreciation is 16.00% [$16,000 divided by $100,000]. And, so on. ( More examples. )
Bonus Depreciation Extended
The American Recovery and Reinvestment Act of 2009 extends the 50-percent first-year bonus depreciation allowed under the 2008 Economic Stimulus Act through December 31, 2009. The extension is retroactive to January 1, 2009. The new law also extends, through 2010, the additional year of bonus depreciation allowed under the 2008 Economic Stimulus Act for property with a recovery period of 10 years or longer, for transportation property (tangible personal property used to transport people or property), and for certain aircraft.
Useful Links
CCH Tax Briefing: 2008 Economic Stimulus Package.
http://tax.cchgroup.com/legislation/2008-stimulus-package.pdf
Joint Committee on Taxation, Technical Explanation
of the Revenue Provisions of H.R. 5140, the "Economic Stimulus Act of 2008" ”as
passed by the House of
Representatives and the Senate on February 7, 2008. (JCX-16-08), February 8,
2008. Estimated Revenue
Effects of The Budget Provisions Contained in H.R. 5140.
Prepared by the Staff of the Joint Committee on Taxation (January 28, 2008). H.R.
5140: Economic Stimulus Act of 2008.
