I posted last week on Iowa not coupling with the federal government on the permanent increased Section 179 that was included in the tax bill passed in December, 2015. It appears fairly certain that the Iowa Senate will not allow a vote on coupling Section 179 for 2015. I decided to try to get an idea how much this will cost Iowa farmers for 2015.
The Iowa Department of Revenues provides data on Section 179 taken on tax returns for 2012-2014. During these years, schedule F farmers took the following amounts of Section 179 deductions:
•2012 - $1,820,596,133
•2013 - $1,752,132,740
•2014 - $1,213,672,818
You can see a large drop off in 2014 (due to lower crop prices and most farmers had already upgraded their farm equipment). The data also breaks down the amount of Section 179 taken (less than $25,000, $25,000-$100,000, $100-$200,000 and $200,000-$500,000). For 2014, the amount of Section 179 taken by farmers that was less than $25,000 was about $161 million. Therefore, if current Iowa law (Section 179 at $25,000) was in effect for 2014, about $1.06 billion of Section 179 would not have been allowed. Part of this amount would have been allowed as regular depreciation. In most cases, this is about 10% of Section 179 not allowed.
Therefore a conservative estimate is that Section 179 will cost Iowa farmers the following:
•Likely Section 179 not allowed for 2015 (using 75% of 2014 numbers not including amounts under $25,000 to be conservative) - $789 million
•Less amount allowed as regular depreciation at 10% (Iowa does not allow bonus depreciation) - ($79 million)
•Net amount disallowed - $710 million
•Times an average rate of 6% equals total cost to Iowa Farmers of about $43 million
Likely the actual amount will be even higher. Almost $762 million of Section 179 was reported on partnership and S corporation tax returns in 2014. Since many of the Iowa Farmers file as an S corporation or partnership, probably a substantial portion of this flow-through Section 179 will be disallowed too.
We did not get the data on C corporations. Many farmers file as corporations and that investment will be limited too.
Therefore, we would estimate that not coupling with federal Section 179 will cost Iowa Farmers between $40 and $75 million in 2015. Since Iowa says this will be a permanent non-coupling, Iowa Farmers will face similar costs in the future (although it may get smaller each year due to increased depreciation deductions on amounts not allowed for Section 179).
I will keep you posted.