I’m sure you all have heard about the 2008 Economic Stimulus Act (ESA) and we are all anxiously awaiting our $600 (hopefully) check so that we can go out and stimulate the economy! After receiving the 200+ page book on the ESA (great bedside reading for you insomniacs) it is clear to me that we don’t have a clue about what our legislators are up to. And why? Maybe because we rely on the media to inform us of their goings on…maybe because the media is sure that our short little attention spans can only handle the simplest of concepts…maybe because despite the changing times, we are all convinced that we cannot affect change by ourselves. I don’t agree. If you took only one other aspect of the ESA and put it to work you would be well on your way to building or rebuilding your wealth.
Take a look at the part of the ESA that grants you 50% depreciation on items that have a tax life of 20 years or less. If you own a business and need to make any capital expenditures this year…don’t wait. With this nifty allowance you can write off 50% of the value of that expenditure (given it would normally be put on a depreciation schedule of 20 years or less – ask your CPA for confirmation) in 2008!
The really exciting part of this is that if you buy investment real estate in 2008 you can increase your depreciation deductions by as much as 150% in 2008! What does that mean exactly? Here is a great example. I have a friend that just bought a foreclosure property…he is a first time investor and he intends to fix up the property and rent it out. Not a novel concept by any means, but let me show you how to make this into simple strategy one that could build significant wealth over time.
Once it is rented he will generate cash flow on the house. Did I mention the house was in California? Okay, so he has this one house and he qualifies for the accelerated depreciation the ’08 ESA offers because he has a chattel appraisal (cost…approximately $600) done on his newly refurbished rental house. This depreciation bonus gets him very close to his $25,000 depreciation allowance for the year which means that he doesn’t have to pay taxes on $25,000 of his ordinary income in ’08. Now if he takes that tax savings (about $6250 at the 25% tax bracket) and invests it next year in another property, he is well on his way to building a solid financial future.
Now that is how to turn your $600 check into $6000! Keep that money moving and growing!