Economic Stimulus Act of 2008
(February 20, 2008)
Congress passed the $152 billion bipartisan economic stimulus package (H.R. 5140) on February 7. This bill is in response to the President’s 2008 economic stimulus package outlined in January, which calls for 2008 individual income tax rebates and enhanced deductions for businesses. It is projected that the package, through its tax rebates, will help place an estimated $106 billion of purchasing power into the U.S. economy.
The individual income tax provision to provide rebate checks has two features; an amount based on filing status and income tax liability (the basic credit) and an increase in the child care credit. Both the basic credit and the child care credit are phased out at a rate of 5% of adjusted gross income over certain amounts; starting at $75,000 for single taxpayers, and $150,000 for joint filers. Under the first component, for single persons the basic credit provides a minimum rebate amount of $300 and a maximum amount of $600. For persons who are married and filing jointly, the minimum rebate amount is $600 and the maximum amount is $1,200.
Seniors living alone on their Social Security income, or disabled veterans, will also receive a rebate of as much as $300 each. The maximum rebate amounts will be determined based on the minimum of a) the taxpayer’s liability or b) 10% of the first $6,000 of taxable income ($12,000 if married filing jointly). Under the second component, if a taxpayer receives an income tax rebate and has children, taxpayers will also receive a rebate amount of $300 per qualifying child.
A tax cut this year for businesses, as an incentive to make new capital investments, is estimated to result in increased U.S. employment. For businesses, the legislation contains two provisions that apply to equipment purchased and placed into service in 2008; an increased IRC Section 179 expensing amount, and a bonus depreciation deduction. Under the first provision, the current Section 179 business equipment expensing provision is increased to $250,000, with a phase-out amount of $800,000. Under the second provision, a business will be allowed a 50% bonus depreciation on new equipment that is acquired or placed in service in 2008. This will allow one-half of the cost of eligible property to be recovered in the year it is placed in service. The remaining one-half would be depreciated using the normal depreciation rules. Bonus depreciation applies for both regular tax and the AMT but not for the purpose of determining earnings and profits. Under both provisions, qualifying property acquired includes tangible property, purchased computer software, and other non-real estate property used in a trade or business. In addition, property qualifying for bonus depreciation includes leasehold improvements and tangible property that has a recovery period not in excess of 20 years.
To help improve the current conditions in the U.S. real estate market, the legislation also increases the 2008 mortgage dollar amount that can be insured by the Federal Housing Authority (FHA) for its single family program. In certain markets where the cost of housing is very high, the mortgage amount that can be insured could range from $362,790 up to $729,750. In less expensive markets the insurable mortgage amount range would be $200,160 to $271,050. This provision expires on December 31, 2008.
