We got the following question from a reader:
This question actually has at least two items that need to be addressed. First, Section 179 deduction is allowed to the extent of net income generated by the business before the deduction. Assuming that this young farmer operates both of these business as a sole proprietorship, he will be able to combine the net income before Section 179 deduction of both businesses plus any wages that he has earned off farm to arrive at the total income that is available for the Section 179 deduction. If the net income of the seed business is more that the net loss of the farm after the Section 179 deduction, then the deduction will fully allowed.
However, if both of these businesses are operated in a partnership or corporation, he will not be able to combine the income to help take the deduction on the farm.
Land improvements such as driveways are not allowed for the Section 179 deduction. Tiling and fencing usually qualify for the Section 179 deduction.
If the son had purchased the land first and then put in new fencing, tile and driveways, all of these costs would qualify for the 100% bonus depreciation which does not have an income limitation and land improvements qualify for this deduction.
These types of situations should always be reviewed with your tax advisor before the purchase to determine the optimal income tax situation and structure.
“My son who is first time young farmer has just purchased a farm on December 31, 2010. He has another successful seeding business. Can he use section 179 for tile , fence and driveways against his other seeding business income? “
