CLIENT ALERT

For additional information contact:
Lorna E. Smith
Marketing Coordinator
lsmith@untracht.com

February 11, 2008

New Tax Law

Congress has passed the Economic Stimulus Package Act of 2008, a bipartisan bill intended to increase consumer spending. The legislation provides for tax rebates for most individuals and accelerated deductions for capital expenditures by businesses. The IRS is expecting to begin mailing rebate checks in May.

Following is a summary of the Stimulus Act's tax provisions:

Rebate. An eligible individual will receive a basic credit equal to the greater of: (1) his net income tax liability up to a maximum of $600 ($1,200 for a joint return); or (2) $300 ($600 for a joint return) if either (a) the taxpayer's qualifying income is at least $3,000; or (b) his net income tax liability is at least $1 and gross income is greater than the sum of the applicable basic standard deduction amount and one personal exemption (two personal exemptions for a joint return). Qualifying income is earned income generally, veterans' disability payments (including payments to survivors of disabled veterans), and social security benefits. There will be an additional $300 per-child credit amount.

The amount of the rebate (both the basic and the child's amount) phases out at a rate of 5% of adjusted gross income (AGI) above $75,000 ($150,000 for joint returns). The rebate won't be available if an individual's tax return does not include valid identification numbers. A valid identification number is a Social Security Number issued by the Social Security Administration, and does not include a Taxpayer Identification Number issued by the Internal Revenue Service.

Boosted Sec. 179 expensing. Under current law, taxpayers can expense up to $128,000 for 2008 (as indexed for inflation). This annual expensing limit is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during 2008 exceeds $510,000 (as indexed for inflation). The expensing rules are eased for qualifying empowerment zone property, renewal property, and GO Zone property. The amount of the expensing deduction is limited to the amount of taxable income from any of the taxpayer's active trades or businesses. For tax years beginning in 2008, the Stimulus Act will increase the $128,000 expensing limit to $250,000 and boosts the overall investment limit from $510,000 to $800,000.

Bonus first-year depreciation. Bonus first year depreciation was first allowed following the terrorist attacks of 2001 but under current law generally isn't available for property acquired after 2004 (there are some exceptions, such as for qualified GO Zone property generally placed in service before 2008). The Stimulus Act generally permits a bonus first-year depreciation deduction of 50% of the adjusted basis of qualified property acquired and placed in service after Dec. 31, 2007, and before Jan. 1, 2009. The otherwise applicable “luxury auto” cap on first year depreciation will be increased by $8,000 for vehicles that qualify. The types of property eligible for bonus depreciation will be the same as those eligible under earlier bonus depreciation packages: (1) tangible property with a recovery period not exceeding 20 years; (2) purchased computer software; (3) water utility property; and (4) qualified leasehold improvement property. Bonus depreciation will be allowed for alternative minimum tax (AMT) as well as for regular tax purposes.