By C. Robert Holcomb, University of Minnesota Extension
- This new law extends bonus depreciation, extends and doubles Section 179 expensing, and also removes cell phones from listed property.
- The new law extends, through December 31, 2010, 50-percent first-year bonus depreciation, which had expired at the end of 2009. The extension is retroactive to January 1, 2010.
- The new law also extends, through 2011, an additional year of bonus depreciation allowed for property with a recovery period of 10 years or longer, and for transportation property (tangible personal property used to transport people or property).
- The new law also increases the maximum Section 179 deduction to $500,000 and the investment limit to $2 million for tax years beginning in 2010 and 2011.
One additional change that will impact farmers in this new legislation involves the removal of cell phones and similar personal communication devices from the current classification of listed property. This change effectively lifts the strict substantiation requirements of use and the additional limits placed on depreciation deductions.
- Previous legislation mandated that for new farm equipment placed in service during 2009, a five-year cost recovery period was required. This provision of the tax code expired at the end of 2009.
- Basically, this means that farm machinery, regardless of whether the farm machinery is new or used, goes back to seven-year property for tax purposes.
- A farmer utilizing cash-basis accounting is entitled to prepay up to 50 percent of the total schedule F expenses reported in any given year.
- The 50-percent maximum includes not only total cash expenditures but also depreciation, Section 179 expense, and bonus depreciation.
- Deferring crop insurance is allowable if the farmer would have normally sold the crop that the insurance payment was received for in the following year.
- Crop insurance payments based upon a revenue component are not deferrable. Only crop insurance payments received in lieu of crop damage and or loss are deferrable under current guidelines.
- the Internal Revenue Service website, www.irs.gov
- the 2010 National Income Tax Workbook from the Land Grant University Tax Education Foundation, Inc., available at www.taxworkbook.com
- CCH Tax Briefing: Small Business Jobs Act of 2010 (PDF), www.tax.cchgroup.com/legislation/Small-Business-Jobs-Act-7-23-10.pdf