The Economic Stimulus Act of 2008, best known for its recently-distributed economic stimulus checks for individuals, also contains several incentives for businesses. One incentive within the act allows for the deduction of 50 percent of the depreciation of new property used for the business, said Paul Senger, a shareholder and CPA with Brookfield-based Winter, Kloman, Moter & Repp S.C. The deduction is for property used for the business, including machinery, computer networks, telephone systems and vehicles of more than six tons.
Previous tax law allowed for the depreciation of the asset to be written off over a five year period, Senger said. "Normally, you have to take depreciations over time," he said. "By having the 50 percent allowance you can take the expense of half of the item in the first year, plus you can begin depreciating the remaining half in the first year."
For example, if a business bought a $40,000 machine, it could write off the first $20,000 the first year. The business could also write off another $4,000 during the first year, because the remaining 50 percent of the asset’s depreciation could be written off over five years.
The Economic Stimulus Act also expanded the existing Section 179 Property code, which allows a business to treat some purchases as expenses, therefore deducting them in the first year of service. Previously, companies could deduct up to $128,000 under Section 179, Senger said. That limit has been raised to $250,000 under the Economic Stimulus Act, he said.
"You can write off the first $250,000 in asset purchases in 2008 (under the section)," Senger said. "You would want to use the (Section) 179 first because there is a cap on asset purchases. With anything above that you can use the 50 percent depreciation."
Senger and his associates at Winter, Kloman, Moter & Repp have started to tell some customers about the deductions they can take advantage of with the Economic Stimulus Act in recent months, with mixed reaction.
"When we’re out meeting with clients on a monthly or quarterly basis we are bringing it up before them," he said. "Some are saying that the economy is in the tank and some are saying they were planning to expand so this is great."