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The Economic Stimulus Act: More than a Few Rebate Checks

By Diane Kennedy - March 2008

Editors Note: Make sure you read Marketing Mania this month on "A Big Housing Boost from Congress: Raising the Conforming Loan Limit".

The recently-approved new higher conforming loan limits will provide a big boost to borrowers in the higher cost of living markets who have been hit the hardest in this downturn (such as California, Florida, New York and most coastal markets) by providing more affordable financing options. This will in effect help sellers unload their properties to a bigger pool of prospective qualified buyers. Don't miss it!

The news is full of information on the new Economic Stimulus Act. But all you hear about is the $300 - $1200 rebate checks that most Americans will get this spring. However, there are two lesser known provisions that could give real estate investors even more money in their pockets.

First, though, let's start with the rebate checks. You've probably seen on the news about the checks and that you'll get $300 - $1200, or maybe even a little more. Here are some of the important facts about those checks that you may have missed:

  • These aren't a "gift" from the government. They are an advance payment from next year's tax return. You're going to need to either decrease the amount of refund you get from your 2008 tax return, filed in 2009 or you'll have to increase the amount you pay in, to cover the advance.
  • There is a new 10% tax bracket that has been added and the government wants to put money in the American consumer's hands now, hoping that he or she will spend their way out of the current economic downturn.
  • You will have to have filed your 2007 tax return to get the check. So, if you extend your return, like most business owners and investors do, you will have to wait until the end of the year to get your refund check.
  • There is a range of income you must make to get the check. If you make too much, or too little, you won't get a check.
  • If you miss out on the rebate check from the 2007 tax return, it is possible to get one later if your 2008 tax return is in line with the income numbers.

That's a highlight of the rebate portion of the Act. However, I am more excited about the next two changes:

  • The Section 179 provision has been increased to $250,000 per year! That means tangible personal property used in your trade or business (and real estate investment can count here) does not need to be capitalized and depreciated, but can be immediately expensed.
  • The Section 179 amount can not throw you into a loss, or increase a loss, so it won't work for everyone. The next one will, though.
  • Bonus depreciation is back! For 2008, you can take double depreciation on a new asset (it can not be used) that again is tangible personal property and used in your trade or business at least 50% of the time.

Sometimes people forget about the repair and remodeling expenses that they might have with their real estate investments when it comes to taking advantage of the special business deductions like these. The bonus depreciation and Section 179 are not applicable for the real assets that you purchase (such as a building) but they can be used for personal property items within that building.

Take the time to carefully examine and record your purchases in 2008. You could get a big tax break if you do.

Diane Kennedy is the nation's preeminent tax strategist and the author of the Wall Street Journal and Business Week best-sellers "Loopholes of the Rich" and "Real Estate Loopholes" (both on my Recommended Reading list); owner of an online tax education company; and owner of DKAffiliate a leading tax strategy and accounting firm in Phoenix, AZ.

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