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.
Watch Your Section 179 Deduction from Multiple Entities!
Oct 11, 2011
With the increased Section 179 deduction of $500,000 available in 2011, farmers need to be very careful if they have ownership in multiple partnerships and S corporations that will be purchasing large amounts of used equipment and deducting it under Section 179. The partnership and S corporation have an overall $500,000 Section 179 limitation on deducting at their entity level and when this amount flows through to the farmer, there is another $500,000 limitation level on his tax return.
If more than $500,000 of Section 179 expense flows through to the farmer, the excess amount is permanently lost as a deduction. In this case, the farmer should have one or more of the entities look at amending their tax return to take a lower amount of Section 179 or if it is new equipment, the 100% bonus depreciation rules would apply and it would result in the same deduction to the entity.
Another trap to watch out for is if the farmer has multiple C corporations that he controls, the Section 179 rules require the $500,000 limitation to be allocated among all of the C corporations that he controls. This will result in only $500,000 being able to be deducted among all the C corporations.
If you think these limitations may apply to you, make sure to review it with your tax adviser. The worst thing that can happen from a tax standpoint is to permanently lose a tax deduction that can be prevented.