On February 13, President George W. Bush signed H.R. 5140, The Economic Stimulus Act of 2008. To address short-term economic uncertainties, this act is expected to put money back into the hands of American workers and business, spurring future growth. In total, the impact of the stimulus package amounts to more than $152 billion, or about 1 percent of gross domestic product (GDP).
Two specific provisions in the stimulus package will affect rental companies and their equipment purchasing decisions in 2008. Americans will see an enhancement of section 179 and a 50-percent bonus depreciation allowance.
Enhancements to section 179 include the amount at which business owners can expense on new purchases made in the 2008 tax year. Under the current law, a maximum amount of $128,000 was allowed to be expensed on the purchase of qualified property that did not exceed $510,000. With the enhancement under the stimulus package, the government is increasing the expensing limit to $250,000 with the total qualified equipment purchase increasing to $800,000. This means a reduced tax liability on new equipment, allowing for more dollars to be spent in the current tax period.
The 50-percent bonus depreciation provision allows taxpayers/business owners to increase the amount of depreciation deduction in the 2008 tax year. This means that in addition to the normal depreciation of equipment in year one, any purchase made in 2008 will be eligible for 50-percent bonus depreciation. For example, consider a five-year asset with 20 percent in normal depreciation that costs $30,000 when purchased in 2008. This equipment is eligible for $15,000 (50 percent) in bonus depreciation, plus $3,000 in normal depreciation of the adjusted basis of the equipment after bonus depreciation ($15,000) for a total of $18,000 in depreciation for the current tax year.
Businesses that qualify for the section 179 enhancement can also take advantage of the 50-percent depreciation allowance on property they do not expense under section 179. However, all property must meet the following conditions to qualify:
- Property to which a modified accelerated cost recovery system applies with a recovery period of 20 years or less
- New property purchased after December 31, 2007
- Property placed in service before January 1, 2009
There are some special exemptions to these qualifications for certain narrowly defined types of property. Most rental businesses will purchase property that will meet these qualifications, but all business owners are advised to check with their tax professionals to determine the rules that apply to specific purchases.
"We are very excited about what the stimulus package means for the future of the rental industry," stated Christine Wehrman, executive vice president and chief executive officer of the American Rental Association (ARA). "There has been much uncertainty about growth potential and the purchasing of new equipment, so this is welcome news. The fact that President Bush signed the bill into law during The Rental Show was fantastic timing for exhibitors and show attendees," Wehrman concluded.
The American Rental Association (www.ARArental.org) is an international trade association for the owners of equipment rental businesses and the manufacturers and suppliers of construction/industrial, general tool and party/event rental equipment. ARA members, which include more than 7,500 rental businesses and 1,100 manufacturers and suppliers, are located in every U.S. state, every Canadian province and more than 30 countries worldwide. Now in its sixth decade of operation, ARA is the source for information, advocacy, business development tools, education and training, networking, and marketplace opportunities for the rental equipment industry throughout the world. According to the ARA's most recent State of the Equipment Rental Industry research study, the rental industry continues to grow with rental industry revenue in the U.S. at approximately $31.1 billion annually.