Electing 50% Bonus for 2017 Returns is All or None

For assets acquired and placed in service after September 27, 2017, 100% bonus depreciation applies.  This is true for all farm assets other than land, whether new or used .  There is a special election that allows taxpayers to elect the old 50% bonus depreciation for the first tax year ending after this date.

Under old tax laws, you could elect out of 50% bonus depreciation on a depreciable-by-depreciable life basis.  For example, a farmer could have 5, 7, 10 and 15 year property.  He/She could elect out of 50% bonus on the 5 and 7 year property and keep 50% bonus on 10 and 15 year property.

The special election out of 100% bonus and into 50% bonus on those assets acquired after September 27, 2017 is an all-or-none election.  Therefore, you can take 100% bonus depreciation as under the old law (elect out on selected lives) or if you want only 50% you have to elect this on all assets.

As an example, assume Farmer Jones purchases a new tractor for $300,000 on March 1, 2017, a new combine for $500,000 on November 1, 2017, and puts new tile in for $100,000 in June 2017 and then another $100,000 of tiling in November 2017.  The farmer could use bonus depreciation as follows:

  • Take 50% bonus on the tractor and $100,000 of June 2017 tile ,
  • Take 100% bonus on the combine and $100,000 of November 2017 tile,
  • Elect out of 50%/100% bonus on the tractor and combine (these are the same depreciable lives at least until December 31, 2017),
  • Elect out of 50%/100% bonus on the tile (both June and November),
  • Elect out of 50% bonus on either the tractor or June tile and elect out of 100% bonus on combine and November tile by taking 50% on each (required to take 50% on each asset).

To make the election, you simply attach a statement to the tax return indicating you are making the election.

  • Principal
  • CliftonLarsonAllen
  • Yakima, Washington
  • 509-823-2920

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives a combine each summer for his cousins and that is what he considers a vacation.

Comments

Paul,
I thought Sec 179 came first. Does this mean know that Bonus is first and you have to elect out to take Sec 179?

I have farm client’s who put their grain under CCC loan in 2017 and have claimed the CCC loan as income in past years. Farmers might benefit by filing Form 3115 and claim the CCC loan as a loan instead of income in 2017? Their potential 199a deduction could reduce their 2018 taxable income. Your Thoughts.

You would need to look at the benefit of the old DPAD deduction versus the new 20% deduction, etc.

Paul – Great stuff. Where can we find reference info that gives updated length of depreciable life by asset type? For example, we’ve heard that tractors are moving to a 5 year life. But combines remain at 7 years? Then the buildings as asked above. What about land improvements like earthmoving, clearing and draining? Are these also eligible for 100% expensing?

All new farm equipment will be five years whereas used farm equipment will be seven years.

I recommend your blog to many farmers. Can you clarify how 2018 rules relates to the building of a single purpose ag building or a multi-purpose ag building compared to qualified improvements? Farmers are hearing everything can be expensed now, but that is not 100% accurate.

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