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Economic Stimulus Act: Incentive for Purchasing Manufacturing Equipment

June 27, 2008
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WASHINGTON, D.C.-In addition to providing stimulus payments to individuals, the Economic Stimulus Act of 2008 provides incentives to businesses. These incentives include a 50% depreciation allowance for 2008 purchases and an increase in the small business expensing limitation for tax years beginning in 2008.

Purchasing new production equipment could save companies thousands on their 2008 tax bill.

Before the 2008 Economic Stimulus Act, a business could deduct up to $128,000 of the cost of qualified equipment purchases. If the business purchased more than $510,000 of qualified equipment during the year, this amount was reduced. Because of the 2008 Economic Stimulus Act, these amounts have almost doubled.

For 2008, a business can now deduct up to $250,000 of the cost of qualified equipment purchased in 2008 from their taxable income. If the cost of qualified equipment purchased during 2008 exceeds $800,000, this amount is reduced. This $250,000 deduction is phased out on a dollar-for-dollar basis between $800,000 and $1,050,000.

In addition to the above expensing election, the Economic Stimulus Act also allows for a 50% bonus depreciation on certain assets placed in service before January 1, 2009. In order to be eligible for this bonus depreciation the assets’ original use must occur during 2008.

After reducing the basis of the assets placed in service during 2008 by the above amounts claimed, companies can take the standard depreciation on the adjusted basis of qualified equipment.

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