The answer to the title of this blog post is "Yes". I will explain.
The new tax law allows farmers to deduct 100% of their fixed asset purchases beginning after September 27, 2017. However, the law also allowed farmers to elect out of 100% bonus deprecation and use 50% bonus depreciation during 2017. The IRS then expanded this provision to provide that any fiscal year that contains September 27, 2017 is allowed to elect out of 100% bonus depreciation. Unlike Section 179 which is for years beginning in such and such a year, bonus depreciation is based upon the date an asset is placed in service.
Therefore, Fiscal Year taxpayers through August 31, 2018 may contain assets placed in service after that date. Where the 40% comes into play is for assets placed in service after December 31, 2017. If you elect out of 100% bonus you are now in 40% bonus depreciation. Under the old law; 50% bonus was scheduled to drop to 40% for 2018 and then 30% in 2019 and zero thereafter. You will not need to worry about the 30% or zero provision.
If you elect out of bonus for a 2018 fiscal year, part of your assets may be 50% bonus (assets between September 28 and December 31, 2017) and part may be 40% bonus (assets after December 31, 2017).
On an additional topic of concern. The IRS came out late last week with unofficial guidance that if your business has more than the de minimis amount of Specified Service Trade or Business (SSTB) income, then all of your income will have that taint for that year. For farmers under $25 million of average revenues, the de minimis limit is 10%; 5% for all other taxpayers. For farmers under the threshold, we don't care since all of this income will count anyway. However, for farmers or other businesses who are over the threshold, this can effectively eliminate the 20% deduction for that year for all of your business income.
We previously wrote of our concern regarding elevators dealing in grain and having that income being treated as SSTB income. If this unofficial guidance becomes the final regulation, then these private elevators will likely have all of their income classified as SSTB income and thus any owner above the threshold will get no 20% deduction. We are working on getting this fixed, but this is where the IRS position is currently.
Let's see how it might affect a farmer. Let's assume a single farmer nets $300,000 from his farm operation (with sufficient wages) and receives a $35,000 appearance fee. Since $35,000 is greater than 10% of combined income of $335,000 (assuming the de minimis is based on QBI not revenues), all of the income generated from the farm is now considered to be SSTB. This results in the farmer losing a possible $60,000 Section 199A deduction for that year.
Another worry that we would have is if the farmer receives a DPAD from a cooperative during that same year, will the IRS assert that DPAD is not allowed as a deduction since it is received as part of a SSTB operation.
We will keep you posted.