Who will benefit from the 2008 economic stimulus plan?

by Alan L. Olsen, CPA, MBA (tax)
Managing Partner
Greenstein Rogoff Olsen & Co. LLP

Friday, March 14, 2008 -- While it is unlikely the new emergency fiscal stimulus package that sailed through Congress and was signed swiftly by President Bush last month will do much to turn around our current economy, many individuals no doubt will welcome rebates and other tax relief courtesy of "Uncle Sam."

But who is really going to benefit? The $150 billion plan - intended to help thwart the looming recession - focuses on three groups: families, businesses and borrowers. Following is an explanation of the benefits each likely will experience this year, based on their 2007 tax situation, and, possibly into 2009, after filing their 2008 taxes.

Consumers reporting 2007 earned income of at least $3,000, with adjusted gross income of less than $150,000 (joint couples), and $75,000 (single), will see rebate checks arriving ranging from $300 to $1,200. The checks will be issued even if an individual reports no tax liability.

Individuals also will receive another $300 rebate per child. The 2008 recovery rebate credit will be payable in the form of an advance rebate check based on 2007 return numbers.

Individuals missing out on the 2008 credit can have a second chance to qualify for the credit in 2009, when they file their 2008 tax return.

Businesses with capital expenditures made after Jan. 1, 2008, and before Jan. 1, 2009, will see an increase in their ability to write off the cost of new equipment and software. The package allows 50 percent depreciation on new equipment put into service during the year, rather than the 20 percent maximum. Also, an additional 50 percent, first-year depreciation will be allowed on software. This tax provision effectively doubles the benefits of an existing write-off for small businesses. The bonus depreciation is not limited to taxpayer income or the amount of capital expenditures made during the year.

For the tax year beginning in 2008, the Section 179 deduction also is increased for businesses with capital expenditures of $800,000 or less. Businesses will be permitted to deduct up to $250,000 of purchases in 2008, and depreciate the balance over the life of the asset (five years for computers, three years for eligible software). The Section 179 deduction begins to phase out as capital expenditures exceed $800,000, and are completely phased out when qualifying purchases exceed $1,050,000.

Another perk for some businesses: Luxury auto depreciation limits have been raised from $3,060, and an additional bonus depreciation of $8,000 is allowed. Therefore, the total first-year depreciation on a luxury auto is now $11,060 ($11,250 for vans or trucks).

The emergency economic stimulus package allows Fannie Mae and Freddie Mac - for one year - to buy loans of up to $729,750. The current limit is just $417,000. Also, the plan would increase the $362,790 limit on loans insured by the Federal Housing Administration (FHA), and make it easier for borrowers to qualify.

Unfortunately however, the downside for borrowers in California is that the net effect of the easing of credit is expected to have little impact in a state notorious for its sky-high real estate prices. The median existing home price here: approximately $490,000.

Alan L. Olsen is managing partner of Greenstein, Rogoff, Olsen & Co. LLP, a Fremont accounting and business advisory firm.