The Farm CPA
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
Some Questions about Section 179
Dec 07, 2011
A reader asked the following question:
"Do I have to take 100% of the cost of property when opting for the Section 179 depreciation, or am I also allowed to take any % less and then use normal depreciation for the remainder? Also, if it is placed in service in 2011 and paid for in 2012, is it all reported on the 2011 taxes?"
You are not required to take 100% of the cost of an asset for Section 179. Section 179 is an election that a farmer can make. By using the election, the farmer will list the asset that he wants to take the deduction on and how much of a deduction he wants to take. For example, if you purchase a tractor for $175,000, you can elect to take a Section 179 deduction of anywhere from $1 to $175,000 (depending on your income limitation). The remaining amount after the Section 179 deduction will be depreciated normally. For 2011, if the tractor is new, the remaining amount will be 100% bonus depreciation and, if used, it will normally be depreciated using a seven-year life.
If you purchase new equipment, we would normally suggest just taking the 100% bonus depreciation for this year. Reserve Section 179 for any used assets.
For the second question, as long as the equipment is placed in service before the end of the year and the farmer has incurred a debt (to be paid after year-end), the equipment is available for Section 179 or 100% bonus depreciation if new and Section 179 if used.