SEMA eNews Vol. 11, No. 7, February 14, 2008


The economic stimulus measure passed by Congress and to be signed into law by President Bush includes several important business tax breaks. The new law includes both a temporary increase in the first-year direct-expensing allowance and a bonus depreciation deduction of 50% for 2008. The direct expensing allowance increases to $250,000 from the current level of $128,000. The new law also provides an increase in the phase-out cap based on total equipment purchases in a year, rising to $800,000 from the current $510,000. 

Here is an example on how the tax breaks work:

  • The direct-expensing allowance is applied first. If you have a $450,000 machinery purchase, the amount written off in the first year would be $250,000. 
  • The 50% bonus depreciation is then applied to the remainder basis of $200,000. That means another $100,000 can be written off in for 2008. 
  • Then the regular first-year depreciation allowance is taken based on the remaining $100,000 basis. That amount depends on the class life of the asset and a few other technicalities, but for this example we will use a five-year life and a straight line deduction of another 20% , so the taxpayer can expense another $20,000. 
  • Final result: The taxpayer is able to expense $370,000 of the $450,000 in tax year 2008.

In addition to the business incentives, most taxpayers will receive checks of up to $600 for individuals or $1,200 for married couples. The amounts will be phased-out at a rate of 5% for each $1,000 in earnings above the cap incomes of $75,000 for individuals and $150,000 for married couples. Under this formula, the rebates will be completely phased out at $87,000 for individuals and $174,000 for joint filers without children. Checks are expected to be mailed between May and July.

For more information, contact Stuart Gosswein:

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