Does a Machine Shop Qualify for Section 179?

Published on: 11:42AM Dec 05, 2010

We had a reader just send in the following question:

"We have built a machine shed with part of it closed in as a farm shop. This part will receive concrete, electric, heat, etc. I have been told this qualifies under the section 179 deduction. Is that correct? "

This is an area of the tax law that is always getting mis-interpreted constantly.  Most farm buildings are allowed to be depreciated over 20 years and for 2010, the farmer will be allowed to take the 50% bonus depreciation on the building if it was built and put in service during 2010.

A farmer who builds a new single purpose agricultural structures (SPAS) is entitled to take both (1) Section 179 on the cost and (2) depreciate the structure over a 10 year period instead of 20 years.

In order to qualify as a SPAS, it must meet the following tests:

  • Single purpose livestock structure - can only be used for housing, raising or feeding one type of animal, or
  • Single purpose horticultural structure - A greenhouse or structure used for the production of mushrooms.

In general, a hog confinement facility, chicken coops, milk parlors, and greenhouses will be classified as a SPAS and qualify for Section 179.  However, if the facility is used for more than one purpose such as a hog confinement facility also feeding chickens, it will not qualify for Section 179 and be depreciated over 20 years, not 10 years.

In addition, if a SPAS includes a work space for machinery, etc. it must solely be used for:

  • The stocking, caring for, or collecting of livestock or plants or their produce, or
  • the maintenance of the enclosure or structure, or
  • the maintenance or replacement of the equipment used for the livestock or produce housed in the structure.

This means that if the SPAS simply has a work area to solely help in the operation contained in the structure, then this area will qualify for Section 179.  However, if it is a general shop area or has multiple purposes, then that area will not qualify for Section 179 and may taint the overall SPAS for the whole structure.

Therefore, in this case, it would be my opinion that the area does not qualify for Section 179 since it is simply for machine shop with a farm shop portion.