The Emergency Economic Stabilization Act of 2008, signed into law on October 3, 2008, includes a wide variety of federal tax changes that affect businesses. Most of them are favorable to taxpayers and many of them only apply to certain industries.

Here is a quick rundown of some of the changes and the type of businesses that are likely to benefit or be hurt:

Business/ Industry	Tax Change	Details
All qualifying businesses	The Research Credit is extended and modified.	The valuable credit for businesses that invest in the development of new products and technologies had expired at the end of 2007. The new law extends the credit to amounts paid or incurred through 12/31/09.     Modifications: The election to claim the alternative incremental research credit is repealed for tax years beginning after 2008. And the alternative simplified research credit rate is increased to 14 percent (from 12 percent) for tax years ending after 2008. Conforming changes are also made to the orphan drug credit.
Restaurants and businesses that lease property	The 15-Year depreciation tax break for restaurants and leasehold improvements is extended.	The new law extends favorable 15-year straight-line depreciation for qualified leasehold improvements and qualified restaurant building improvements for two years, to cover property placed in service in 2008 and 2009. In addition, eligibility for 15-year depreciation is expanded to cover qualified restaurant buildings themselves (as well as building improvements). This change applies to buildings place in service in 2009.     Advisory: Without the 15-year rule, leasehold improvements, restaurant building improvements, and restaurant buildings generally must be depreciated over 39 years using the straight-line method.
Retailers	A new 15-year depreciation tax break for retail space improvements.	A provision in the law allows 15-year straight-line depreciation for qualified retail improvement property placed in service in 2009. It covers real property improvements to the interior of a nonresidential building if:     1. The portion is open to the public and used in a retail business selling tangible personal property to the public and     2. The improvement is placed in service more than three years after the building was put in use. However, 15-year depreciation is not available for improvements related to: A building enlargement, Elevators or escalators, Structural components that benefit common areas, or The internal structural framework of the building.     Note: Without the favorable 15-year rule, these improvements generally must be depreciated over 39 years using the straight-line method.
Non-C corporation businesses	The enhanced deduction for charitable food donations is extended.	The enhanced charitable contribution deduction for non-C-corporation businesses that donate wholesome food now covers donations in 2008 and 2009.     Normally, deductions for donated food are limited to the lesser of: the taxpayer's cost basis in the food or the food's fair market value. However, the enhanced deduction amount equals the lesser of: Basis plus one-half the value in excess of basis or Two times the basis.
C corporations	The liberalized deduction for book donations is extended.	The law extends a liberalized deduction for C corporation donations of books to schools to 2008 and 2009. The liberalized deduction amount equals the lesser of: Basis plus one-half the value in excess of basis or Two times the basis. To qualify, book donations must be made to a public school that provides elementary or secondary education.
C corporations	The enhanced deduction for donations of computer equipment is extended.	The law extends the enhanced deduction for C corporation donations of computer equipment and related technology to qualifying educational organizations and public libraries. Donations in 2008 and 2009 are now covered. The enhanced deduction amount equals the lesser of: Basis plus one-half the value in excess of basis or Two times the basis. To qualify, items must be donated within three years after the C corporation donor acquired them new or constructed them.
S corporations	A special rule to encourage donations of appreciated property is extended.	A special rule for charitable donations by S corporations is extended to cover taxable years beginning in 2008 and 2009. Under the rule, a shareholder's tax basis in S corporation shares is only reduced by the shareholder's proportionate share of the corporation's tax basis in donated non-cash property. This benefits shareholders because they are left with a higher tax basis in their shares after the corporation donates certain appreciated assets, which have been held for more than one year.
All qualifying businesses	First-year expensing of environmental clean-up costs is extended	As a general rule, environmental clean-up costs are treated as expenses that must be capitalized. However, under an exception that expired at the end of 2007, a company can elect to currently deduct clean-up expenses in areas designated as contaminated sites by state authorities.     The new law extends the provision allowing taxpayers to immediately deduct qualified environmental remediation expenses through 12/31/09.
Oil, gas, and refining companies	Various favorable and unfavorable provisions	Four changes affecting oil, gas and refining businesses are included in the new law. They involve the domestic production deduction, foreign tax credit, enhanced depreciation rules and depletion deductions. Click here for details.
Farming businesses	New depreciation tax break and enhanced deduction for charitable contributions.	The law contains two provisions for farmers: One allows equipment to be depreciated over a shorter period of time and the other provides an enhanced deduction for charitable donations of wholesome food. There are deadlines for both tax breaks. Click here for details.
Financial institutions including community banks, savings and loans, business development corporations, banks and savings and loan holding companies and others	Institutions can treat Fannie Mae and Freddie Mac losses as ordinary losses.	A new rule mandates ordinary gain/loss treatment for gains or losses recognized when applicable financial institutions sell or exchange applicable preferred stock in Fannie Mae or Freddie Mac that: Was held on 9/6/08 or Was sold or exchanged between 1/1/08 and 9/6/08.     Without this favorable provision, financial institution losses from selling Fannie Mae and Freddie Mac preferred shares would generally be classified as capital losses and subject to strict limitations on deductibility.     Advisory: The law also gives the IRS authority to extend ordinary gain/loss treatment to other instruments held by financial institutions that don't precisely meet the definition of applicable preferred stock (for example, pass-through trust certificates based on Fannie Mae and Freddie Mac preferred stock).
Film makers	Changes that may make the domestic production deduction easier to qualify for.	For purposes of claiming the domestic production deduction (also called the Section 199 deduction), gross receipts include those from making qualified films.     The law liberalizes the definition of qualified films to encompass copyrights, trademarks, and other film-related intangibles. It also liberalizes the definition of "W-2 wages" used to determine the 50 percent-of-W-2-wages limitation for filmmakers. The expanded definition covers compensation for services in the U.S. by actors, production personnel, directors, and producers -- whether the compensation is in the form of W-2 wages or not. Also, it is now easier to claim domestic production deductions for filmmaking ventures involving partnerships and S corporations. The changes are effective for tax years beginning after 2007.
Television and film production businesses	The first-year expensing tax break is extended.	The law extends the provision allowing immediate deductions of up to $15 million to $20 million (depending on the circumstances) of qualified film and television production costs through 12/31/09. Another change allows the same favorable treatment for productions that cost more than the applicable threshold ($15 to $20 million) beginning in 2008 and 2009. Previously, the first-year expensing break was lost for productions exceeding the threshold.
Race track facilities	Depreciation tax break is extended.	The law extends favorable seven-year depreciation for qualifying property used for land improvements and support facilities at motorsports complexes. The tax break expired on December 31, 2007, but now covers property placed in service in 2008 and 2009.

These are just some of the business tax changes in the massive Emergency Economic Stabilization Act of 2008. For information about the personal tax breaks, click here to read our previous article, "Congress Bails Out Taxpayers Too." We will cover the energy-related tax breaks in a future article.

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