New Bonus Depreciation Rule Will Help Providers in 2008
September 2008
The Economic Stimulus Act of 2008 that gave many providers a rebate check also contains a business tax benefit for providers.
Providers who buy items in 2008 may be eligible for a special 50% depreciation allowance. This allowance allows providers to deduct 50% of the business portion of the item in 2008 and depreciate the remaining 50%, thus creating a much higher business deduction this year.
Property that is eligible for this special allowance includes: computers, office equipment, furniture, appliances, play equipment, fences, driveways, and a car. The purchase of home improvements or a home does not qualify. The item must be purchased new in calendar year 2008 and used in your business this year. The purchase of a used item does not qualify.
Here's an example of how this special allowance works:
- Let's say a family child care provider bought a living room couch for $1,000 in March 2008 and her Time-Space Percentage for the year is 40%.
- $1,000 x 40% = $400 (the business portion of the couch)
- $400 x 50% = $200 (the amount of the special depreciation allowance that can be deducted on Form 4562 in 2008)
- The remaining amount must be depreciated ($400 - $200 = $200)
$200 x 14.29% = $28.58 (the amount that can be depreciated in 2008 using the 7 years accelerated depreciation rule on Form 4562) - Total amount of deductions for 2008: $200 + $28.58 = $228.58
- Under the old rules the provider would only be able to deduct $57.16 ($400 x 14.29%)
