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TAXPAYERS IN RELIEF AREAS MAY MAKE ELECTION FOR HIGHER WRITEOFFS
The Economic Stimulus Act of 2008 put in place new rules on expensing deduction for business assets similar to the bonus depreciation rules for the Gulf Opportunity Zone and Kansas disaster areas. The Economic Stimulus Act increased the dollar limits for Sec. 179 expensing from $128,000 to $250,000 per year. It also increased the phase-out amount from $250,000 to $800,000 in yearly investment. The phase-out amount is designed to target the relief to small businesses with a limited amount of investments-now $800,000. If taxpayers spend more than this amount on new, depreciable property, they lose the deduction. The law also allows 50% additional first year depreciation. These changes are effective for tax year 2008. (Neither amount is adjusted for inflation.)
The good news for taxpayers in the GO Zones or Kansas Relief Areas is that they essentially get to double-dip on depreciation deductions. They can take advantage of both the existing tax relief measures and the new increased limits under the Economic Stimulus bill. This can result in these taxpayers having up to $350,000 in expending write-offs with a $1,400,000 limit on equipment purchases for 2008.
IRS also cautions that since the expensing limits change from 2008 to 2009 and beyond, a problem can arise when a partner's or S Corporation shareholder's tax year does not coincide with the partnership or S Corporation's. When this happens, a partner or S Corporation shareholder's expensing deduction can be delayed until the entity's tax year.
PracticeTip: Note the IRS will allow taxpayers without its consent to make an expensing election by filing an amended return.
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