Tax Tip: Direct Expensing Limit Doubles for New Property

December 11, 2008 06:00 PM

The Economic Stimulus Act of 2008 may save you big bucks when tax time comes around.

"The direct expensing maximum limit increased to $250,000 for tax years that begin in 2008—it was $125,000 in 2007,” says Larry Burton, TelFarm manager and Extension educator for Michigan State University. An additional 50% bonus depreciation is also required for new property this year, he adds.

Eligible property includes farm machinery and equipment, single-purpose livestock buildings, drainage tile and pickups with more than 6,000 lb. gross vehicle weight.

Here's how it works: If you purchased a new combine for $300,000 this year, $250,000 can be taken as a direct expense. The remainder is left for normal depreciation.

"Bonus depreciation is 50% of the remaining cost of $50,000, or $25,000,” Burton says. You would also be able to depreciate a portion of the remaining $25,000. On seven-year property such as combines, the first-year deduction on $25,000 equals $2,678.

"Our $300,000 combine is allowed a first-year total maximum depreciation of $277,678 ($250,000 plus $25,000 plus $2,678),” Burton says.

To read more from the December issue of Dairy Today, click here.

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