Maximum Section 179 Deduction Still at $500,000 for Many Farmers
With the rapid changes in the bonus depreciation and Section 179 deduction for 2010 to 2012, I thought I would update our farmers on how much Section 179 is available.
For bonus depreciation of new equipment, if the asset is placed in service between January 1, 2012 and December 31, 2012, then 50% bonus depreciation is available.
Section 179 rule are a little different since these provisions are based upon when your fiscal year begins. Many farmers have a C corporation and if that fiscal year begins in 2011, then they can take a Section 179 deduction of up to $500,000. For fiscal years beginning in 2012 (including the normal calendar year), a farmer can take Section 179 of up to $139,000 and the phase-out of this deduction begins at $560,000.
Let’s show an example:
Farmer Smith has a C corporation with a year beginning September 1, 2011 and ending August 31, 2012. The corporation purchases a new tractor for $300,000 on November 1, 2011, a new combine for $350,000 on March 1, 2012, and two used tractors for $375,000 on June 1, 2012.
The corporation will be able to fully deduct the new tractor bought in November, and then has to make a choice on the new combine bought in March for $350,000. If it does not take Section 179, the 50% bonus depreciation creates a $175,000 deduction plus normal depreciation of $18,750 or $193,750 total. If it takes the full Section 179 on the tractors of $375,000, this leaves $125,000 to apply against the combine leaving $225,000 available for bonus depreciation, resulting in $112,500 plus depreciation of $12,053 or total Section 179 and depreciation taken of $249,554. In this case, taking the Section 179 of $125,000 results in a larger total deduction by about $56,000.
If this farmer was a calendar year taxpayer, they would not be able to take any Section 179 on the 2012 purchases, since the total cost or $725,000 exceeds the Section 179 phase-out amount of $699,000 ($560,000 plus $139,000).
Remember, you have to take Section 179 first, then apply bonus depreciation on new assets and depreciate any remaining amount using normal tax depreciation methods.
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 Walla Walla, 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. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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