Business incentives: recent legislation provides bonus depreciation and enhanced expensing.

• Author: Josephs, Stuart R.
• Position: Fed Tax

The 2008 Economic Stimulus Act (P.L. 110-185) authorizes an additional depreciation deduction equal to 50 percent of the adjusted basis of "qualified property" that is placed in service after 2007 in tax years ending after 2007. This property must be acquired after 2007 and before 2009. Fiscal year taxpayers can claim this depreciation deduction on new IRS Form 4562-FY.

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Qualified Property: Qualified property must meet these requirements:

1. It must be included within one of these categories:

   * Property eligible for the modified accelerated cost recovery system with a depreciation recovery period of 20 years or less;

   * Water utility property;

   * Off-the-shelf computer software (which is not covered by Sec. 197); or

   * Qualified leasehold improvement property (discussed below).

2. The property's original use must commence with the taxpayer after 2007. Original use is the first use to which the property is put, whether or not that use corresponds to the taxpayer's use of the property. This means that the property must be new property in the taxpayer's hands.

3. The property generally must be acquired by the taxpayer:

   * After 2007 and before 2009, but only if no binding written contract for that acquisition was in effect before 2008; or

   * Pursuant to a binding written contract entered into after 2007 and before 2009.

4. The property generally must be placed in service after 2007 and before 2009. A one- year extension of this placed-in-service date (to before 2010) applies to certain property with a recovery period of 10 years or longer and to certain transportation property (tangible personal property used in the trade or business of transporting persons or property). This property must have an estimated production period exceeding one year and cost more than $1 million.

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   This one-year extension also applies to certain aircraft.

   Comments:

   * If all of the above requirements are met, bonus depreciation applies automatically to qualified property, unless the taxpayer "elects out" under Sec. 168(k)(2)(D)(iii).

   * In IR 2008-58, 4-11-08, the IRS announced that it will soon issue guidance on claiming bonus depreciation. Until then, taxpayers can rely on the previously issued regulations governing prior bonus depreciation.

   Qualified Leasehold Improvement

   Property: This property is any improvement to an interior of a building which is nonresidential real property if these conditions are met:

1. The improvement is...