The article below outlines a big part of the new Economic Stimulus Package that went in to effect on February 13, 2008. At the core is the 50% bonus depreciation. This should help in many markets, but the bonus depreciation is in effect in some strong markets right now. The area along the gulf coast-Louisiana, Mississippi, Alabama known as the "GO Zone" and in particular 4 Mississippi counties-Hancock, Harrison, Jackson, and Pearl River hace the bonus depreciation in effect until December 31, 2010. Find out about some of the best GO Zone opportunities in these areas.
Temporary 50% Bonus Depreciation
Effective Period:
Dec 31, 2007 - Jan 1, 2009
Great news for taxpayers who are embarking on a new construction project or are
adding leasehold improvements in 2008 - the Economic Stimulus Act of 2008 was officially
signed into law on February 13, 2008, and with it, 50% bonus depreciation is back
for a limited time.
Under the new law, taxpayers qualify for a 50 percent first-year bonus depreciation
on certain types of property for the current tax year. As it relates to any building
construction expenditures, the majority of these benefits can only be identified
through the use of a cost segregation study.
By learning how the latest tax rules work, building owners and tenants in the process
of construction can significantly decrease their tax payments.
KNOW THE RULES, INCREASE TAX DEDUCTIONS:
The rules behind bonus depreciation are fairly complex. Much of the eligibility
for additional tax deductions from bonus depreciation is based on when construction
has started. With the recent changes, taxpayers can claim an additional 50 percent
first-year depreciation deduction on qualified property where construction started
between December 31, 2007 and before January 1, 2009. Qualified property is defined
as any property that has a depreciation schedule of 20 years or less. As Stated
by the IRS Chief Counsel, "the important thing to know is that in order for
anybody to take advantage of this program, they must hire an independent 3rd party
qualified engineering firm to perform the Cost Segregation Study."
ENHANCE YOUR SAVINGS WITH COST SEGREGATION:
Cost segregation studies reclassify a substantial portion of a building project
from 39 years (or 27 1/2 years in the case of residential income properties), into
five-, seven- and fifteen-year property. In addition to the normal accelerated deductions
this creates, the assets also become eligible for bonus depreciation. Therefore,
taxpayers constructing or remodeling buildings have even more incentive to have
an engineering-based cost segregation study performed. The study will help the
taxpayer take full advantage of the bonus depreciation rules by identifying every
constructed asset that qualifies for the shorter depreciation periods, such as certain
millwork, special electrical connections and landscaping.
THE BOTTOM LINE:
To illustrate the tax savings, consider $100,000 of 39-year property that provides
a $1,282 tax deduction in the first year. If a cost segregation analysis were to
reclassify this $100,000 into five-year property, the resulting tax savings would
be twofold. By making the property eligible for bonus depreciation, up to 50 percent
can be deducted in the first year, allowing for a deduction of $50,000. The shorter
tax life allows for an additional first-year deduction of $10,000, bringing the
grand total in first-year tax deductions to $60,000 compared to $1,282 without the
study. That is a 4,580 percent increase in first-year tax deductions!
ACT NOW:
The incentives included in the new law can result in substantial benefits for property
owners, but they are limited to the current tax year. Taxpayers in the process
of construction should take full advantage of the bonus depreciation rules by having
a cost segregation study performed to further decrease their tax liabilities and
increase their cash flow.
Circular 230 Disclaimer: This article represents a general overview of tax developments
and should not be relied upon without an independent, professional analysis of how
any of these provisions may apply to a specific situation. Any tax information contained
in the body of this article was not intended or written to be used, and cannot be
used, by the recipient for the purpose of avoiding penalties that may be imposed
under the Internal Revenue Code or applicable state or local tax law provisions.
Comments(2)