New Business Depreciation For 2008
New Business Depreciation For 2008
As we come to the close of 2008 this economy has caused a volatile year for many. Many Americans have had to scramble to make a living and adjust to changing times. With higher gas prices and costs of living escalating to new levels many businesses are on the brink of extinction. For the lucky few that have had a profitable year it is time to maximize the situation and plan to minimize the tax burden. The government has made some substantial changes in 2008 for investing in the U.S and we are going to look at the depreciation area for qualified acquisitions.
The following is one of the incentives that is available for 2008:
2008 Changes for Eligible Depreciation Look at the example below
Increased Section 179 limits. The maximum section 179 deduction you can elect for qualified section 179 property you placed in service in tax years that begin in 2008 has increased to 250000 285000 for qualified enterprise zone property and qualified renewal community property. This limit is reduced by the amount by which the cost of section 179 property placed in service in the tax year exceeds 800000. For qualified section 179 Gulf Opportunity GO Zone property placed in service in certain counties and parishes of the GO Zone the maximum deduction is higher than the deduction for most section 179 property.
Special depreciation allowance for certain property. You may be able to take an additional first year special depreciation allowance for certain qualified property defined below. The allowance is an additional deduction of 50 of the property’s depreciable basis after any section 179 deduction and before figuring your regular depreciation deduction.
Property that qualifies for this special depreciation allowance include the following.
- Tangible property depreciated under the modified accelerated cost recovery system MACRS with a recovery period of 20 years or less
- Water utitiliy property
- Offtheshelf computer software
- Qualified leasehold improvement property
Examples of Qualified property are the following and must also meet all of the following tests.
Dump trucks garbage trucks water trucks boom trucks vacuum trucks semi trucks excavators backhoes forestry equipment farm equipment office equipment machinery and equipment production equipment computers etc
You must have acquired qualified property by purchase after December 31 2007 and before January 1 2009. If a binding contract to acquire the property existed before January 1 2008 the property does not qualify. Additionally the
- Qualified property must be placed in service after December 31 2007 and before January 1 2009 before January 1 2010 for certain transportation property and certain property with a long production period.
- The original use of the property must begin with you after December 31 2007.
In a nutshell here is an example to illustrate the information above. Lets assume the following facts. You are a corporation sole proprietorship etc and your net profit is 600000 from January 1 thru October 31 2008 November and December will be a breakeven therefore we are at the 600000 profit for the year based upon our estimate. We have some new signed contracts for the end of 2008 or beginning of 2009 and we need to buy some major equipment in the last month of the year and take delivery before the end of the year. We can get this equipment financed and the monies required down are minimal maybe 10000 and the total purchase price is 400000…..If we execute this contract before the end of the year and take delivery we are entitled to a 325000 deprecation expense deduction for 2008. The way I came up with is deduction is by studying the information above. The first 250000 of qualified acquisitions are dollar for dollar and the balance is 75000 150000 x 50 = 75000 . The 150000 is the remaining basis after deducting the special 250000 from the original acquisition cost of 400000. It is important to understand that the cash outlay of 10000 has nothing to do with the depreciation deduction for 2008.
Obvious from this example this could be a big bonanza to reduce taxes in 2008 without the major outlay of upfront money. It is important to obtain current interim 2008 financial statements from your CPA bookkeeper or in house books now to study your tax situation for 2008. This example above can be scaled back or up to a smaller or larger version and can have a tremendous impact on your company’s 2008 tax situation. These depreciation rules only apply to a profitable company and shouldn’t be considered for additional operating losses. Additionally it is recommended that you consult with a qualified tax person because this tax law change is new and is higher upgraded from the allowable deductions for 2007.. For companies looking to acquire qualified assets for 2008 with substantial profit there are limitations and phase out rules for acquistions over 800000. Tax planning is important at this time of year whether you are Profitable or not and consulting with a qualified tax person is as equally as important . The dollars invested in this area if done properly will reward your company handsomely.
About the writer:nbsp;nbsp;Rick has over thiry years in the financial field including leasing working capital and hard asset money loans and commercial lending
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