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The Farm CPA

RSS By: Paul Neiffer, Top Producer

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.

Don't Taint Your Farm Building

Apr 27, 2011

We had a reader ask the following question:

"Does a construction company putting up a building get the same 100% bonus depreciation for 2011 like is on Ag buildings"
 
The quick answer to this is "no".  A construction related building is not considered to be 20 year property and therefore is normally depreciated over 39 years on a straight-line basis and is not available for 50% or 100% bonus depreciation.
 
This does bring up an issue that farmers need to be aware of if they are constructing new buildings on their farm property during 2011 and 2012.  If the purpose of the building is 100% farm related, then the building will always qualify for the bonus deprecation.  However, if the building is used partially for farm purposes and partially for non-farm purposes, then none of the building may qualify for bonus depreciation.
 
For example, many farmers have several other businesses that they operate.  They may have a:
  • Trucking business to transport their own grain or others grain,
  • A tile laying business,
  • A construction business,
  • Excavating, road-building, and related business,
  • Fence erection business, etc.
 
Most farmers would consider that most of these businesses are related to farming, however, in most cases the IRS would consider these to be non-farming business.  Therefore, if a new farm machine shop that is erected and the use of this building includes these non-farm operations, then the building may not be considered a farm building for bonus depreciation purposes.
 
There is no one answer as to how much incidental non-farm use you can have and still have it qualify for bonus depreciation, but if any of these non-farm operations apply to your operation and you are planning on building a new farm  building this year, make sure to review with your tax advisor.
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