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Emergency Economic Stabilization Act of 2008: Effect on Fixed Assets Management

By Nancy Faussett, CPA
Publication date: 10/07/2008

The Emergency Economic Stabilization Act of 2008, signed into law on October 3, 2008, actually contains 3 separate acts: the Emergency Economic Stabilization Act of 2008; the Energy Improvement and Extension Act of 2008; and the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. While the main focus of this Act was to address the recent financial crisis, it ended up including $150 billion in tax incentives for both individuals and businesses. Several of the provisions affect fixed assets management and these I will describe below.

Credit for Plug-In Electric Drive Motor Vehicles

The Act creates a credit for purchasing a qualified plug-in electric drive motor vehicle under a new IRS Code Section 30D. It is part of the General Business Credit. The credit amount is $2,500, plus $417 for each kilowatt hour of “traction battery capacity in excess of 4 kilowatt hours.” However, the amount of the credit is limited based on the vehicle’s weight:

• $7,500, in the case of any new qualified plug-in electric drive motor vehicle with a gross vehicle weight rating of not more than 10,000 pounds,
• $10,000, in the case of any new qualified plug-in electric drive motor vehicle with a gross vehicle weight rating of more than 10,000 pounds but not more than 14,000 pounds,
• $12,500, in the case of any new qualified plug-in electric drive motor vehicle with a gross vehicle weight rating of more than 14,000 pounds but not more than 26,000 pounds, and
• $15,000, in the case of any new qualified plug-in electric drive motor vehicle with a gross vehicle weight rating of more than 26,000 pounds.

The Section 30D credit is effective for tax years beginning after December 31, 2008 and the vehicle must be purchased before January 1, 2015.

As with the Alternative Motor Fuel Credit (Section 30B), there is a phase-out of the credit based on the number of qualifying vehicles sold. Starting on January 1, 2009, once 250,000 of these vehicles have been sold, the credit will be reduced 50% in the 2nd calendar quarter following the calendar quarter which includes this date. The allowable credit is then reduced to 25% for the following 3rd and 4th calendar quarters and it is zero thereafter.
The taxpayer can elect not to take the credit. If claimed, however, the credit reduces the asset’s basis. Furthermore, if the Section 30D credit is claimed on a vehicle, that same vehicle cannot also claim the Section 30B credit.

50% Depreciation Deduction on Recycling Property

There is a special 50% depreciation deduction allowed on certain “reuse and recycling property.” Qualifying property must be new, have a useful life of at least 5 years, and is any machinery and equipment (including the software needed to operate it) that is used “exclusively to collect, distribute, or recycle qualified reuse and recyclable materials.” This does not include property on which bonus depreciation can be claimed. It is defined in IRS Code Section 168(m) and applies to such property placed in service after August 31, 2008.

5-Year Recovery Period for Farming Machinery and Equipment

There will be a temporary 5-year recovery period allowed for new farming machinery and equipment if it is placed in service after 2008 and before 2010. This does not apply to any grain bin, cotton ginning asset, fence, or other land improvement.

Accelerated Depreciation on Smart Meters and Smart Grid Systems

A “smart electric meter” identifies a customer’s consumption of energy (usually electricity or gas) in much more detail than a conventional meter. It is able to send certain information back to the utility company for monitoring and billing. The Act provides that such property may be depreciated using 150% declining-balance method, over 10 years. (Previously, such property was depreciated over 20 years.) Qualifying property must be placed in service after October 3, 2008.

Tax Relief for Qualified Disaster Property

The Act provides relief for business property located in a federally declared disaster occurring after 2007 and before 2010. Among the provisions for such businesses are a 50% depreciation allowance and an increased Section 179 expensing for “qualified disaster property.”

50% Depreciation Deduction: Similar to bonus depreciation, 50% of the adjusted basis of qualified new disaster assistance property may be claimed as depreciation in the year the property is placed in service (Section 168(n)). This reduces the depreciable basis of the asset and there is no AMT depreciation adjustment required for such property. It may be claimed on the same property that qualifies for bonus under Section 168(k)(2)(A)(i), plus it may be claimed on nonresidential real property and residential rental property. Qualifying property must be placed in service by the end of the third calendar year following the disaster date (or, by the fourth calendar year if nonresidential real or residential rental property).

Increased Section 179 Expensing: The maximum Section 179 expense amount is increased for qualifying disaster assistance property by an additional $100,000 (or the cost of qualifying property, if less) and the investment limit for such property is increased by an additional $600,000 (or the cost of qualifying disaster property, if less). Qualifying Section 179 property must be placed in service by the end of the third calendar year following the disaster date.

Tax Extenders

The Act contains several provisions extending existing credits, deductions, and rules that were about to expire.

• Alternative Fuel Vehicle Refueling Property Credit

There is a credit under IRS Section 30C for 30% of the cost of qualified alternative fuel vehicle refueling property. The Act extends this credit for one year, through 2010 (for other than hydrogen refueling property, which has to be placed in service before 2015). In addition, the Act adds electricity as a clean burning fuel.

• 15-Year Qualified Leasehold Improvements and Restaurant Property
  The 15-year recovery period for qualified leasehold improvements and qualified restaurant property (using straight-line) is extended for two years, through 2009.
• 7-Year Motorsports Racing Track Facilities
  The 7-year recovery period for motorsports racing track facilities is extended for two years, through 2009.
• Shorter Recovery Periods for Indian Reservation Property
  The shorter recovery periods, resulting in accelerated depreciation deductions, for qualifying business property on Indian Reservations is extended for two years, through 2009.
• 50% Expensing on Mine Safety Equipment
  The 50% expensing (Section 179E(g)) for qualifying advanced mine safety equipment is extended for one year, for property placed in service through 2009.
• Energy Credits
  The Act extends and modifies several of the existing energy credits. The Section 48 credit for solar energy, fuel cell, and microturbine property is expanded and extended for eight years through 2016. The Section 45 credit for producing electricity from qualified wind and refined coal facilities is extended through 2009.
• Credit for Energy Efficient Commercial Buildings
  The Act extends the Section 179D credit for energy efficient commercial buildings for five years.

See the related articles as to how the Act will affect individual taxpayers and businesses.