Senate Proposal Would Allow Farmers to Depreciate Machinery Faster

November 5, 2015 12:02 PM
 Senate Proposal Would Allow Farmers to Depreciate Machinery Faster

Two U.S. Senators want to change the tax code so farmers can depreciate their machinery over five years rather than the current seven.

Sen. Pat Roberts (R-Kansas) and Sen. Amy Klobuchar (D-Minn.), who are sponsoring the legislation, said in a statement that they believe five years would be a more appropriate timeline for depreciation, given that producers typically finance such farm equipment over five years.

“Changing the depreciation schedule for agricultural equipment to five years would make the tax code more consistent and support rural development by aligning the length of time that farmers can take a depreciation deduction with the average useful life of that property,” the senators said.

If enacted, the proposal could prove helpful to growers and the farm machinery industry alike. Sales have dropped significantly at many manufacturers due to low crop prices and tightening farm budgets. AGCO recently reported a 19.4% drop in year-over-year sales in the third quarter, and John Deere, which just bought Precision Planting this week, said in August it expected its 2015 agricultural equipment sales in the U.S. and Canada to be 25% lower than the previous year.

“Given the current economic environment, more operators are thinking longer-term, and this bill's passage would be very positive toward goosing investing in machinery purchases and now being able to depreciate the asset sooner,” Greg “Machinery Pete” Peterson told AgWeb.

But Peterson also cautioned against such a bill—if moves forward and is passed—having a dramatic effect. “I don’t know that it would have a huge immediate impact,” he  said. “Farmers have become trained over past years to focus so much on the IRS Section 179 write-off end of things.”

Paul Neiffer, who writes The Farm CPA blog, agreed.

“It’s not really a big incentive to farmers. What provides a big incentive to farmers is Section 179 which means they can deduct 100% of (the purchase) immediately, or the bonus depreciation. Changing the depreciable life from seven years to five years is a very minor consideration for most farmers.”

What do you think of this proposal? Would changing the depreciation schedule affect your machinery purchases or tax situation? Let us know in the comments. 

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Spell Check

Nebraska City , NE
11/9/2015 06:35 AM

  Section 179 is the worst tax management strategy that a farmer or any business can use. Depreciation is a better choice, depreciation will make farming/ranching a stronger industry. With section 179 you spend ALL you depreciation up front and have nothing left for the remaining years of service out of that piece of equipment. If you run your operation strictly on the guidelines of not wanting to pay taxes then you are not focusing on profit. If you want to build cash reserve, or doing anything with cash, you have to pay some tax so you have cash left over to do business with. The idea of using section 179 to erase all tax is a very poor business decision. a

Oberlin, KS
11/5/2015 03:21 PM

  Is the senate even talking about the 179 expense? Is there any chance of changing it this year from 25,000.

nisswa, MN
11/5/2015 06:02 PM

  Jim is right on.If you are not making money in this business then depreciation will not help.


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