The following commentary does not necessarily reflect the views of AgWeb or Farm Journal Media. The opinions expressed below are the author's own.
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
We had a reader ask the following question:
The short answer to this question is yes. If the owner of the farm materially participates in the business of the farm (which is my assumption in this question), then whatever loss is created by the use of 100% bonus depreciation on new equipment is allowed to offset the income generated by the gas lease. However, if the farmer is buying used equipment and wants to take Section 179 on the equipment, he would only be able to take enough Section 179 deduction to soak up the income from the dairy. He would not be able to increase the dairy loss to offset the gas lease income.
Conversely, let's assume that the gas lease generated a loss during the year and the dairy generated income. This gas lease loss would not be allowed to offset any of the dairy income during that year (this assumes the taxpayer has no other passive income and his income is greater than $150,000).
Remember the following chart:
Passive income is generally any rental activity or an investment in a business where you have limited ownership or management roles.
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