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 Thoughts on Section 179 and Bonus Depreciation
Nov 03, 2013
Farmers have gotten accustomed to high levels of Section 179 ($500,000 for the last few years) and at least 50% bonus depreciation since 2008. For 2013 the levels are $500,000 for Section 179 and 50% bonus, however, for 2014, Section 179 is scheduled to drop to about $25,000 and there will be no bonus depreciation.
In a more normal Congress situation there would be a good chance of an increase in Section 179 and perhaps a change to bonus depreciation by the end of this year. However, this is not a normal time in Washington DC and the fiasco with the Health Exchange rollout may make it worse. I would not count on any changes to Section 179 and bonus depreciation for 2014 until after the Mid-term elections.
This means that farmers need to determine their equipment/tax savings plans assuming the lower levels will stay in place. If you are having a very good year and NEED to upgrade or get new equipment, I would certainly recommend getting it this year. If you have started the construction of new grain bins or other larger projects, make sure those are finished by year-end. If done by December 31, you get to deduct an immediate 50%, if done in January, you may only get to deduct 10% of less.
Remember that Section 179 is allowed for new AND used equipment, while bonus is only on NEW equipment. You cannot take Section 179 on trade-in basis of old equipment, but can use it for bonus. Section 179 applies to farm equipment and single purpose farm structures and land improvements. Bonus applies to all farm assets including buildings.
Some farmers who have financed their equipment may find their tax bill going up since they now have income with no tax depreciation to help offset it and still having to make equipment debt payments. If farm incomes start to drop this may crimp their financial situation. If this applies to you, take steps now to mitigate it.