President Signs Stimulus Tax Legislation

On February 13, 2008, President Bush signed into law the Economic Stimulus Act of 2008, P.L. 110-185, which included several tax items among its provisions.

The most publicized item was the provision to send “recovery rebates” to taxpayers. This provision gives individuals a credit of between $300 and $600 (between $600 and $1,200 for joint returns). The Act makes individuals eligible for this credit for tax year 2007, and the amount of the credit will initially be computed using the taxpayer’s 2007 tax liability. Treasury is directed to refund this credit to taxpayers “as rapidly as possible” (Sec. 6428(g)). As this issue of The Tax Adviser went to press, Treasury was estimating that rebate checks would be sent to taxpayers starting in May and would be “largely completed this summer” (Scott Stanzel, White House Deputy Press Secretary (2/8/08)).

Because the checks will be calculated based on the 2007 income tax return filed, it is advisable for taxpayers with no true filing requirement to consider e-filing a 2007 tax return via the IRS website to qualify for a rebate check.

Taxpayers will figure the credit on their 2008 returns. To the extent that the amount of the credit shown on the 2008 return exceeds the amount a taxpayer received in his or her rebate check, the taxpayer may claim that amount as a refundable credit against his or her 2008 tax liability. If the amount of the check exceeds the amount of the credit shown on the taxpayer’s 2008 return, the taxpayer will not be required to pay back that amount (Joint Committee on Taxation, Technical Explanation of the Economic Stimulus Act of 2008, JCX-16-08 (2/8/08)).

The Act also further increased the limitation under Sec. 179 for expensing certain otherwise depreciable business assets. The Sec. 179 limitation is increased, for tax years beginning in 2008, to $250,000 and the phaseout amount is increased to $800,000 (Sec. 179(b)). The prior limits for 2008 were $128,000 and $510,000 (as adjusted for inflation) (Rev. Proc. 2007-66). These changes are effective for tax years beginning after 2007. The Act did not change the temporary nature of the increased Sec. 179 limitation; the increased amount will not apply to tax years beginning after 2011 (Sec. 179(b)(1)).

Finally, the Act increases the bonus first-year depreciation provision under Sec. 168(k) for certain property acquired after December 31, 2007, to 50% (from 30%), and the allowance is extended to include property placed in service before January 1, 2009 (before Jan. 1, 2010, if the property has a recovery period of at least 10 years, is transportation property, or is a qualifying aircraft). The amount of the limitation under Sec. 280F(a)(1)(A)(i) for qualified passenger automobiles is increased by $8,000 (from $4,600) (Sec. 168(k)(2)(f)).