We had a reader ask the following question:
"Is there an order in which I have to take depreciation? One of your explanations indicated taking section 179 first then bonus depreciation and then regular depreciation. I am wanting to take the 100% bonus depreciation on all new items and not section 179 due to the fact I would not have to recapture section 179 depreciation if I later traded or sold the asset before the life of the asset ran out. Is there any reason not to take the bonus rather than the section 179? Do I have to make a special election?"
The Section 179 deduction is an election that a farmer makes when filing their tax return each year. The farmer is not required to take Section 179 on any asset, but rather, has the option to take as much Section 179 on the asset as they want.
If you purchase a combine for $300,000, you can "elect" to take Section 179 of $1 up to $300,000 (assuming you meet the income limitation and overall asset purchase limitation).
Therefore, in this question, the farmer can make an election to not take the Section 179 on the new assets and simply have 100% bonus depreciation apply on new assets. However, if it is a used asset, they can only take Section 179 on the asset, 100% bonus depreciation does not apply.
The election is made on form 4562 where you will list each asset with the name, purchase price, etc. and then how much of the asset you want to take Section 179 on.
Although the farmer will not have Section 179 depreciation recapture on the later sale of the asset, they will still report that same amount of gain on form 4797 whether they took Section 179 on the full asset value or wrote off the asset using 100% bonus depreciation. It will be reported differently, but the gain will be the same amount.