IRS Provides Guidance on Late Bonus Depreciation & Section 179 Elections
Many farmers have fiscal year-end corporations or in some cases partnerships. Those farmers likely have already filed their tax returns that began in 2014 and ended in 2015. At the time of filing these returns, there was no bonus depreciation for assets placed in service in 2015 (it was available for assets placed in service by December 31, 2014). These tax returns likely did not include any bonus depreciation for those 2015 assets.
Today, The IRS released Revenue Procedure 2016-48 containing guidance on how to handle those assets. Generally, you are allowed to go back and file an amended tax return and pick up the correct amount of bonus depreciation for those years. Alternatively, you can deduct the correct amount on your current income tax return and file a Form 3115.
Also, if you elected not to take bonus depreciation (since you thought it might not be available for your assets, etc.), the Revenue Procedure provides guidance on how to “unelect” if so desired.
There were some adjustments available for certain Section 179 elections that the Revenue Procedure addresses too. These provisions do not apply to most farmers, but your tax advisor will likely review those to see if they apply.
The Revenue Procedure is 23 pages long, but all-in-all, it is favorable to the farmer in that they can elect to claim on a prospective basis if it is easier or elect to amend if it saves more taxes. With lower crop prices, it may make sense to file an amended tax return and go back get that additional tax paid.
Paul Neiffer, CPA