A new tax law, called the Economic Stimulus Act of 2008 (Act), contains two significant provisions benefiting many businesses.  The first is an increase to the amount allowed as an expense in the year equipment is acquired (Section 179).  The limit has been increased to $250,000 with a total cost limit for all Section 179 expenditures increased to $800,000.  The other is the availability of an additional depreciation deduction of 50% of the cost of certain depreciable assets (50% bonus depreciation). 

 

Both of these benefits only apply to qualified property placed into service during a tax year beginning in 2008.  Also, both of these provisions could be used on the same asset.  There are a number of rules governing the type of property eligible for each type of deduction and there are certain limitations (for instance, the 179 deduction phases out with current year purchases exceeding $800,000).  However, in general tangible personal property (such as solar equipment) purchased and newly placed into service during 2008 could qualify for both a 179 expense deduction as well as a deduction for 50% of the balance after the 179 deduction.  Once both of those benefits are considered, if there is unexpensed cost basis left you can still apply normal depreciation rules all in the same year. 

 

So, a new $500,000 piece of equipment purchased during and first placed into service in tax year 2008 (assuming no other assets placed into service) may generate income tax deductions on the buyer's 2008 income tax returns as follows:

Section 179 deduction                    $250,000

Bonus depreciation deduction          $125,000    (=(500,000-250,000)*50%)

Regular depreciation deduction          $25,000    (assuming the property is so-called "5 year property")

Total depreciation deductions equal $400,000, which means that the taxpayers can deduct 80% of the cost of this equipment in 2008!  Also, if you're located in an "empowerment zone" or in a "renewal community" the deduction limits could be even higher.

It is important to realize, however, that each taxpayer's tax situation is unique so the actual benefits need to be determined on a taxpayer by taxpayer basis with the assistance of each taxpayer's tax advisor.

One thing is certain though, with the Economic Stimulus Act, 2008 encompasses the most powerful set of solar incentives in history. Keep in mind, that to qualify for these deductions, the solar system must be installed in 2008. So call us today to secure your system!