On May 25, President Bush signed the new Tax Law which The new law extends the current favorable Section 179 deduction rules

through the 2010 tax year and makes some favorable changes as

well:

• Maximum Deduction

Increased to $125,000. For tax years beginning in

2007, the maximum Section 179 deduction is generally increased to

$125,000 (up from the $112,000 figure that applied before the new law).

For tax years 2008 through 2010, the $125,000 amount will be indexed

for inflation.

• Liberalized Phase-Out

Rules. If a taxpayer adds qualifying property

(typically equipment and software) in excess of the annual threshold,

the maximum Section 179 deduction for the year gets reduced (phased

out). For tax years beginning in 2007, the phase-out threshold is

generally increased to $500,000 of qualifying property (up from the

$450,000 threshold that applied before the law). The $500,000 amount

will be indexed for inflation for tax years 2008 through 2010.

• Most Software Qualifies

for the Deduction. The provision that allows

Section 179 deductions for the cost of most off-the-shelf software

products is extended through the 2010 tax year.

• Favorable Amended

Return Rules Extended. A provision that allows

Section 179 elections to be changed or revoked on amended returns is

extended through tax years beginning in 2010.

Key Point: Unless

Congress takes further action the unfavorable "old-law" rules will kick

back in starting with tax year 2011. Under the old-law rules, the

maximum annual Section 179 deduction will fall back to $25,000. The

deduction phase-out threshold will decrease to only $200,000. Software

costs will be ineligible, except for software that is bundled with

qualifying hardware. Finally, taxpayers will not be allowed to change

or revoke Section 179 elections on amended returns.