There are two parts of the stimulus package that relate to the purchase or ownership of construction equipment: Section 179 - Expensing of Certain Depreciable Assets, and the Special Bonus Depreciation Rules. We are going to cover both topics, and lead you in the right direction to determine if a benefit is provided for you or your company by these changes in the tax code.

Section 179
Section 179 allows a taxpayer to deduct or expense the cost of qualifying property placed in service during a taxable year. If you qualify, you may get to write off 100% of the investment. To qualify, the equipment has to be defined as depreciable tangible personal property (no real estate).

The new law allows a taxpayer to expense up to $250,000 of qualifying assets placed in service in 2008, as long as the taxpayer does not purchase qualified personal property in excess of $800,000 during that same tax year. If purchases exceed $800,000, the Section 179 benefit is reduced on a $1 for $1 basis for all amounts over $800,000. In short, once you hit $1,050,000 in 2008 property purchases, you get zero Section 179 benefits.

IMPORTANT POINT #1: Section 179 applies to the 2008 business year. If you operate on a calendar year, this means January 1 to December 31, 2008. If you work on a fiscal year, the benefit is available at the start of your 2008 year, whenever that may be.

IMPORTANT POINT #2: Section 179 applies to both new and used equipment purchases.

IMPORTANT POINT #3: Section 179 deductions cannot be used to create or increase an operating loss. You can carry them over to another year, but you are still restricted from generating or increasing a tax loss.