The $168 billion Economic Stimulus Package of 2008 includes rebates for taxpayers, plus tax breaks for businesses, including
veterinary practices, retroactive to Jan. 1.
The business portion of the package doubles the amount of equipment expenditures a small practice can expense or immediately
write off on its 2008 return from $125,000 to $250,000, with the investment limit increased from $400,000 to $800,000. It
also allows a 50 percent bonus depreciation deduction for practices buying major equipment.
Bonus depreciation equal to 50 percent on new equipment is available, but only if the new property has a depreciable life
of 20 years or less. The bonus depreciation applies to 2008 purchases only.
The new law also raises the limitations on so-called "luxury" auto depreciation. The cap originally was enacted because lawmakers
did not want tax laws subsidizing the use of luxury vehicles by businesses. But because the definition of luxury is out of
date, the new law will allow just over $11,000 as first-year depreciation on business-use vehicles in 2008. Naturally, as with many options in tax laws, every veterinarian will have to decide for himself or herself whether the new
limits will help stimulate the economy of his or her practice.
Section 179
Generally, the cost of veterinary-practice equipment is recovered via depreciation deductions spread over the useful life
of that equipment. Under current rules, an immediate write-off is available to practitioners who choose to treat the cost
of new equipment and property, called Section 179 property, as an expense rather than a capital expenditure.
Thus, in lieu of depreciation deductions, veterinarians with sufficiently small amounts of annual investment have the option
of deducting (or expensing) equipment and property under Section 179. Such property is defined as depreciable tangible personal
property purchased for use in the active conduct of a trade or business.
This has meant the cost of equipment, and in some cases software, can be claimed as an expense rather than depreciated. Originally
designed to encourage small businesses to acquire more property and equipment, the Section 179 write-off limit was raised
from $125,000 to $250,000.
The investment ceiling was increased from $400,000 to $800,000. Above that, the write-off is reduced, dollar for dollar, by
the amount equipment or property exceed that ceiling.
A bonus depreciation
Another provision in the package is a 50 percent bonus depreciation deduction for qualifying, new depreciable property placed
in service during 2008.
Once the cost of that new, depreciable property has been reduced by the Section 179 expensing allowance and the bonus depreciation,
the amount remaining is depreciated or written off over the property's useful life.
Generally, the so-called "major equipment purchases" encouraged by lawmakers do not include buildings. But structures built
as part of equipment or specifically to house equipment may have a useful life of less than 20 years and qualify for bonus
depreciation.
Similarly, courts recently began allowing businesses to depreciate "components" of buildings separately, usually over a shorter
period than the underlying building. Thanks to so-called cost-segregation studies, even existing buildings have been broken
into segments, allowing faster write-offs for components that are not essential to the operation of the underlying building.
So-called personal property used in a building, such as furniture or components or parts identified as a result of a cost-segregation
study, qualify for the 50 percent allowance if placed in service not later than 90 days after the building is placed in service.
Buildings, as mentioned, usually have useful lives longer than the 20-year ceilings and do not qualify for bonus depreciation.
Luxury cars
The term "luxury" as applied to some of the automobiles used by veterinary practices is far out of date. In 2007, for example,
a vehicle was subject to the limitation if its value was at least $15,100 for passenger automobiles and $16,100 for trucks
or vans.
Ordinarily, under the luxury-auto rules, the first-year limit on depreciation for passenger automobiles cannot exceed $3,060.
(However, this was increased to $4,600 when bonus depreciation was previously available.)
The new law raises the cap to $8,000, if bonus depreciation is claimed. For a qualifying vehicle, a maximum first-year depreciation
write-off of up to $11,060 or $11,260, respectively, for vans and trucks is permitted.
If the vehicle is not predominantly used for business in a subsequent year, the bonus depreciation must be recaptured.
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