It's not too late for Bonus Depreciation in 2008!

By Eric H. Hencken, ASA, ASCSP (610-254-8990, ext. 202)

Now that Fall has arrived and 2009 is right around the corner it is not too late to take advantage of 50% bonus depreciation on your improvement projects. The Economic Stimulus Act of 2008 reinstated the 50% first year bonus depreciation most recently enacted in the Jobs and Growth Tax Relief Reconciliation Act of 2003. A cost segregation study will assist in allowing your firm to take full advantage of these savings.

According to the Economic Stimulus Act of 2008 bonus depreciation can be claimed on new property with a depreciable life of 20 years or less, water utility property, computer software depreciable over 3 years, and qualified leasehold improvement property. The property must be acquired after December 31, 2007 and placed in service in 2008. Additionally, a written binding contract needs to be entered within this timeframe as well.

If the contract is entered in 2008 and the project is not completed in 2008 bonus depreciation will not apply, with the exception of long production period property. To qualify as long production period property the following would need to apply:

• The property would have to have a depreciable life of at least 10 years
• The improvement costs would need to be in excess of $1,000,000.
• The production period would have to exceed one year.

In this instance the project will need to be completed in 2009 with bonus depreciation applying to those costs incurred in 2008.

Bonus depreciation was reinstated in 2008 to incentivize construction and investment and is mandatory unless you opt out of it. For owners and developers of real estate, the additional tax benefits due to bonus depreciation, in conjunction with a cost segregation study, can be tremendous. It is unknown whether bonus depreciation will extend to 2009 and beyond so the time to act is now.