The American Taxpayer Relief Act of 2012 extended the $500,000 Section 179 deduction that the 2010 Small Business Jobs Act provided. Under this provision, farmers can deduct up to $500,000 in qualifying purchases. There is a dollar for dollar reduction of the deduction once the farmer’s fixed asset purchases go over $2,000,000. However, the Section 179 deduction is set to be reduced to $25,000 and limited to $200,000 in purchases come January 1, 2014 so farmers need to act before December 31, 2013 to take full advantage of this deduction.
What assets qualify?
The Section 179 deduction allows farmers to deduct part or all of the cost of qualifying farm assets placed in service during 2013. It applies to machinery, equipment and special use or single purpose agribusiness buildings such as bins, drying systems and livestock barns. But it is not available for general purpose agricultural buildings such as machine sheds and shops. New or used equipment, livestock and certain software are also eligible for this deduction. The equipment, vehicle(s) and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction.
50% Bonus Depreciation
In addition to the Section 179 deduction, farmers can also elect to deduct up to 50% Bonus Depreciation on their new qualifying asset purchases. The important difference to note is both new and used equipment qualifies for the Section 179 Deduction as long as the used equipment is “new to you” while Bonus Depreciation covers new equipment only. Current tax law does not extend Bonus Depreciation past December 31, 2013.
Farmers need to act quickly to take full advantage of these two excellent tax deductions before they either vanish completely or are reduced to a level where they have minimal effect on a farmer’s tax return. As with any sound financial decision, it is best to talk with your local tax professional to decide the best course of action for your operation.
Written by: Matt Tuxhorn, Dodge City, KS